Final answer:
A fall in the price of milk, which is used in the production of ice cream, would decrease the cost of ice cream production. Changes in the costs of key inputs like milk can significantly impact production costs and market dynamics in food industries, where demand is typically inelastic.
Step-by-step explanation:
When considering the impact of a change in the price of inputs on the production of goods, such as ice cream, we should focus on how these changes affect production costs. If the price of milk, which is a critical input in the production of ice cream, falls, this would generally lead to a decrease in the cost of producing ice cream. As milk is a significant component in the manufacturing process, a reduction in milk prices means that it costs less for companies to buy the milk needed for their ice cream, therefore the overall production cost is reduced.
It's important to note that while this scenario talks about a decrease in milk prices leading to a reduction in production costs for ice cream, the provided information about cheese production shows that if the price of milk, a key input for cheese production, rises, then the supply decreases. However, if a new study shows positive health effects of cheese, the demand for cheese could increase. These factors can affect overall market dynamics differently, depending on whether it's a question of supply or demand shifts.
Also, when discussing changes in prices of agricultural products like milk, it's essential to understand the concept of elasticity. Food demand is often inelastic, meaning that changes in price don't significantly affect the quantity demanded. This can lead to situations where a significant increase in supply causes a sharp drop in prices, which can reduce total farmers' revenue, whereas a poor yield due to bad weather could raise prices and increase revenue. These are the kinds of market dynamics that can affect the ice cream industry indirectly through changes in input costs.