Question

please answer this question in 300 words. ( no plagiarism please )

Suppose you are analysing the market for two goods - ice-cream and coffee.
(i)Illustrate and explain the impact each of the following would have on demand or
supply of ice-cream. Also show how equilibrium price and quantity have changed.
a. Cyclone Fani destroys part of the sugarcane crop and drives up the price of
sugar
b. Consumer income falls because of a recession and ice cream is considered a
normal good.
c. Producers expect the price of ice cream to increase next month.
d. The price of frozen yogurt, a substitute for ice cream, falls.
e. Covid-19 protocol restricts the timing of opening and closureof production
units in the country.

Answer 1

a) As price of suagr rises, cost of producing ice cream also rises because sugar is an ingredient in producing ice cream. It will induce ice cream producers to produce less of ice cream and shift supply cyrve to its left which raise price from P to P1 and reduce output from Y to Y1.

b) Decrease in income where ice cream is a normal good will result in fall in demand of ice cream and shift demand curve to ita left which result in fall in price level from P to P1 and output level from Q to Q1.

c) As producer expect price of ice cream to increase next month, they will supply less ice cream now and more one month later to maximize their net profit. It will result in rise in price of ice cream now due to its shortage.

d) Fall in price of yogurt will induce consumers to buy more yogurt and less ice cream which reduce demand of it and shift demand curve to its left.

e) Restricting the opening and closure affect production process and become hindrance to produce ice cream which shift supply curve to ita left and result in rise in price level and fall in output level.