There has recently been an increase in the price of dairy products used in the production of ice cream. High temperatures have also induced people to consume more ice cream. In the market for ice cream, the effects these changes will have on equilibrium price and quantity are
A) price will increase, and quantity will decrease.
B) price will increase, and the effect on quantity is indeterminate.
C) price will decrease, and quantity will increase.
D) price will decrease, and the effect on quantity is indeterminate.

Question

Quizplus · Accepted Answer

The increase in the price of dairy products will cause a decrease in supply which will shift the supply curve to the left, leading to an increase in equilibrium price. However, the increase in temperature and people consuming more ice cream will increase demand, causing the demand curve to shift to the right. The effect on quantity, therefore, is indeterminate, as it depends on the extent of the shifts in the supply and demand curves.

There Has Recently Been an Increase in the Price of Dairy