Chapter 2, Problem 1RQ

To determine

Reason for changes in the price of ice cream.

Explanation of Solution

The demand for ice cream will increase during the time of hot weather. When the demand for ice cream increases, it shifts its demand curve from left to right. The change in the demand curve of ice cream is shown in Figure-1 as follows:

In Figure-1, the vertical axis measures the price of ice cream and the horizontal axis measures the quantity of ice cream. The vertical curve “S” shows the supply curve of ice cream in short run and downward sloping curve “D1” “D2” shows the shift in the demand curve. The initial equilibrium price is P1 (intersecting point of demand curve and supply curve). The increasing demand for ice cream during hot weather shifts the demand curve from “D1” to “D2”. This shift in demand curve increases the price from “P1” to “P2”.  The price of ice cream will increase, since the supply of ice cream is constant and the new equilibrium occurs at the point where the new demand curve intersects with the supply curve (after the changes in demand, it occurs at P2 price).

Economics Concept Introduction

Demand curve: The demand curve shows the level of quantity demand at different price levels.