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.

Answer 1

A) quantity supplied will decrease, the equilibrium price will increase, eventually the quantity demanded will decrease - due to the decrease in the milk production

B) quantity demanded will increase, the equilibrium price will increase, eventually the quantity supplied will increase - due to positive benefits of chocolate

C) quantity demanded will decrease, the equilibrium price will decrease, eventually the quantity supplied will decrease - due to the lower price of a substitute product

D) the equilibrium price will decrease, eventually the quantity supplied and demanded will increase - due to the lower manufacturing price