There Has Recently Been an Increase in the Price of Dairy

question 206

Multiple Choice

There has recently been an increase in the price of dairy products used in the production of ice cream. High temperatures have also induced people to consume more ice cream. In the market for ice cream, the effects these changes will have on equilibrium price and quantity are

• A) price will increase, and quantity will decrease.
• B) price will increase, and the effect on quantity is indeterminate.
• C) price will decrease, and quantity will increase.
• D) price will decrease, and the effect on quantity is indeterminate.

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Definitions:

External Benefit

A positive effect on a third party or the general public that arises from a transaction between others.

Producer Surplus

The difference between what producers are willing to accept for a good or service and what they actually receive, due to higher market prices.

Consumer Surplus

The difference between the total amount that consumers are willing and able to pay for a good or service and the total amount that they actually do pay.

Financial Viability

The ability of an entity or project to manage its expenses and generate sufficient revenue to continue operating effectively.