A survey indicated that chocolate is Americans’ favorite ice cream flavor. For each of the
following situation, indicate the possible effects on demand, supply, or both as well as equilibrium price
and quantity of chocolate ice cream.
In particular, you need to draw both demand and supply diagrams
for each of the following questions: a, b, c, & d to explain the effects on equilibrium price and quantity.
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 chocolate
ice cream.
Question 2: Aaron Hank is a star hitter for the Bay City baseball team. He is close to breaking the major
league record for home runs hit during one season, and it is widely anticipated that in the next game he
will break that record. As a result, tickets for the team’s next game have been a hot commodity. But today
it is announced that, due to a knee injury, he will not in fact play in the team’s next game. Assume that
season ticket-holders are able to resell their tickets if they wish. Use supply and demand diagrams to
explain the following.
a. Show the case in which this announcement results in a lower equilibrium price and a lower
equilibrium quantity than before the announcement. Use demand and supply diagrams to explain.
b. Show the case in which this announcement could result in a lower equilibrium price and a higher
equilibrium quantity than before the announcement. Use demand and supply diagrams to explain.
c. Answer under what situation either case (a) or case (b) would occur?
d. Suppose that a scalper had secretly learned before the announcement that Aaron Hank would not play
in the next game. What actions do you think he (scalper) would take?
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