Effects of Severe Drought on Chocolate Ice Cream Supply and Demand

How does a severe drought in the Midwest impact the supply and demand of chocolate ice cream?

What are the possible effects on demand, supply, equilibrium price, and quantity of chocolate ice cream?

Answer:

A severe drought in the Midwest has caused a decrease in the supply of cream used to manufacture chocolate ice cream. This has led to an increase in the equilibrium price and a decrease in the equilibrium quantity of chocolate ice cream.

Explanation:

A severe drought in the Midwest has caused dairy farmers to reduce the number of milk-producing cattle in their herds by a third. This reduction in cattle leads to a decrease in the supply of cream, which is used to manufacture chocolate ice cream. As a result, the supply curve for cream shifts to the left.

Additionally, the market price of cream increases due to the decreased supply. This increase in the price of cream leads to a leftward shift in the supply curve for chocolate ice cream, as ice-cream producers decrease the quantity of chocolate ice cream supplied at any given price.

Eventually, these changes in supply result in an increase in the equilibrium price and a decrease in the equilibrium quantity of chocolate ice cream.