Question

In the summer more people prefer to eat ice cream because of the weather. Suppose at the same time sugar prices have increased due to a hurricane. We can expect the equilibrium price of ice cream to increase and the equilibrium quantity of ice cream to _________.

A. increase
B. decrease
C. uncertain.

Answer 1

C. uncertain.

Step-by-step explanation:

If people prefer to eat ice cream in the summer, the demand for ice cream would increase. Due to the increase in demand, price and quantity would increase.

If the price of sugar which is an input needed in the production of ice cream increases, the supply of ice cream would fall. The fall in supply would lead to a fall in quantity and a rise in price.

Taking these two effects together, equilibrium price would increase but the effect on equilibrium quantity would be uncertain.

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