Economics Essay on Demand and Supply

1937 words 8 pages
During this year’s exceptionally hot summer, ice cream manufacturers started using a new, cheaper method of ice cream production. Assume the market is initially in equilibrium. One has to reflect the following issues in this essay:
1. To show on a diagram the initial market equilibrium for ice cream.
2. To show the effect of a hot summer on ice cream demand.
3. To show the effect of the use of a cheaper ice cream manufacturing method on the ice cream supply.
4. To discuss the resulting changes in equilibrium price and the quantity trade.

In Economics, supply and demand are one of the fundamental concepts. Market price for any commodity is determined by the outcome of demand and supply. The literature explains that where the
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A hot summer implies a greater demand for ice creams. The diagram below shows the shift in demand for ice cream because of the external factor that the summer is exceptionally hot:

Now, under the influence of hot weather, the demand for ice creams increases. This is an external factor that is influencing the demand for the product and thus, the ceteris paribus condition does not hold good now. One can clearly see the difference came in the demand curve because of the hot summer. The demand curve has shift upwards thus increasing the demand in the market and because of higher demand, producers can now ask for a higher price. The effect of hot summer on the ice cream business is associated with demand factor here and represents the point where consumer dominates the market. If consumer demands the product only then it would be possible for ice cream manufacturers to make profit but if demand were there then it would prove to be an opportunity cost for the manufacturers.

Effect of Technology on productivity and supply
Literature states that supply has positive price elasticity, meaning the relationship between changes in quantity and price will both increase together. When a company cuts costs and maintains quality, it becomes more efficient and may make greater profits without changing the price. This is often done by using technology to increase productivity. One of the external factors affecting the supply of a product is the


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