Question 3 - 3 Marks Questions - Chapter 1 Class 7 Economics - Introduction to Demand and Supply - Economics

If there is a sudden increase in the demand for ice cream in your town, what will happen to the price of ice cream?

Answer:

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Answer by Student

• The price of ice cream will increase due to the high demand and limited supply .
• The ice cream sellers will try to maximize their profit by charging more for each unit of ice cream.
• The consumers will have to pay more for the same amount of ice cream or buy less ice cream with the same budget.

Detailed Answer by Teachoo

• The price of ice cream is determined by the interaction of demand and supply in the market. Demand is the quantity of a good or service that consumers are willing and able to buy at a given price in a given period of time. Supply is the quantity of a good or service that producers are willing and able to sell at a given price in a given period of time.
  
  
• When there is a sudden increase in the demand for ice cream, it means that more consumers want to buy ice cream at every possible price. This can be shown by a rightward shift of the demand curve on a graph. When the demand curve shifts rightward, it creates a shortage of ice cream at the original price. A shortage occurs when the quantity demanded is greater than the quantity supplied. To eliminate the shortage, the ice cream sellers will raise the price of ice cream until the quantity demanded equals the quantity supplied. This is called the equilibrium price, where there is no excess demand or excess supply.
  
  
• When the price of ice cream increases, it means that each unit of ice cream becomes more expensive and less affordable for consumers. Therefore, some consumers will reduce their consumption of ice cream or switch to other substitutes, such as frozen yogurt or sorbet. The higher price also encourages more producers to enter the market and supply more ice cream, as they can earn higher profits. This can be shown by a rightward shift of the supply curve on a graph. However, the increase in supply will not be enough to offset the increase in demand, as there are some factors that limit the production of ice cream, such as availability of raw materials, technology, and costs. Therefore, the new equilibrium price will be higher than the original price, and the new equilibrium quantity will be higher than the original quantity. This means that more ice cream will be sold at a higher price in the market. 

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