Equilibrium Price of Ice Cream

Topics: Supply and demand, Microeconomics, Market economy Pages: 2 (567 words) Published: November 12, 2013
Supply and demand is one of the most fundamental concepts of economics and it constitutes the backbone of a market economy. Demand refers to how much (quantity) of a product or service is desired by buyers while supply represents how much the market can offer. The quantity supplied refers to the amount of a certain product manufacturers are willing to supply given a set price. (Investopedia.com - Your Source For Investing Education, 2011). The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price. Generally, if there is a low supply and a high demand, the price will be high. In contrast, the greater the supply and the lower the demand, the lower the price will be. (Investopedia.com - Your Source For Investing Education, 2011). The law of demand and supply applies to any business which would include your perspective ice cream business. There are many different events that would cause a demand shift or a supply shift which would ultimately affect the price of ice cream; these potential events are outlined in this report. During summer time, especially in Arizona, the temperature increases significantly. A higher temperature environment may initiate a greater desire for ice cream, which would result in a demand shift. According to the law of supply and demand stated previously, a high demand would imply a higher price on your product. Another factor which may impact the product market is a fluctuation in the price of milk, a major ingredient in the production of ice cream. If milk cost were to increase it would effectively lead to the trickledown effect where this price increase would be reflected by an increase in the price of ice-cream. Conversely, if the milk price were to decrease this would also potentially result in a decrease in ice cream cost. This circumstance is an example of a supply shift where the increase or decrease in milk price may affect the supply of...
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