A survey indicated that chocolate is Americans\' favorite ice-cream flavor. For

Question

A survey indicated that chocolate is Americans' favorite ice-cream flavor. For each of the following, indicate the possible effects on demand, supply, or both as well as equilibrium price and quantity of chocolate ice cream.

a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk-producing cattle in their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream.

b. A new report by the American Medical Association reveals that chocolate does, in fact, have significant health benefits.

c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream.

d. New technology for mixing and freezing ice cream lowers manufacturers' costs of producing choclate ice cream.

Explanation / Answer

(a) This will cause a decrease in supply, shifting the supply curve to the left. NO change in demand curve. Equilibrium price increase and quantity decreases. (b) This will cause an increase in demand of chocolate, shifting the demand curve to the right. Equilibrium price increase and quantity increases. (c) This will cause an increase in supply. shifting the supply curve to the right. Equilibrium price decrease and quantity increases. (d) This will cause an increase in supply. shifting the supply curve to the right. Equilibrium price decrease and quantity increases. Hope this helps!

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