Consider the market for ice cream bars sold by an ice cream vendor near a Southe
ID: 1156935 • Letter: C
Question
Consider the market for ice cream bars sold by an ice cream vendor near a Southern Califomia beach. For each of the following scenarios show how the change affects supply and/or demand ice cream bars on a Demand and Supply model. (40 points) Note: Though I am expecting you to draw the appropriate change on the supply and demand model, for turning in your assignment you may just describe the change (e.g. the demand curve shifts to the right) that way if you are just typing your solutions, you don't have to invest time figuring how to draw diagrams on your computer. Additionaly, state the effect on equilibrium price and quantity ofice cream bars. (This is bolded and italicized because so many students ignore this part). a· There is a sharp increase in the price of the wholesale dairy products the vendor uses to make the ice cream bars. 1.1 QuantityExplanation / Answer
a) Sharp increase in the price of wholesale dairy products used to make ice cream bars : Increase in price of input reduces supply . So the supply curve shifts leftwards . Equilibrium price rises and quantity falls .
b) Opening up of snow cone vendor nearby : As snow cone is a close substitute , so some people now will buy snow cone and reduce consumption of ice creams . Hence , demand falls for ice creams . Demand curve shifts left . Both equilibrium price and quantity falls for ice cream .
c) As the article praises the ice creams , demand increases . So demand curve shifts right . equilibrium price and quantity both rises .
Now , decrease in taxes help vendors to sell more at a given price . Hence supply also increases . The supply curve shifts right . Equilibrium price falls and quantity rises .
So in total effect : the effect on equilibrium price is ambiguous but quantity definitely rises .
d) Price is declining while quantity sold increases . So there is an increase in supply . The supply curve shifts right . As supply increases , the price falls due to excess quantity in the market .