Chapter 2R, Problem 8MCQ

To determine

The factor which causes the price of chocolate ice cream to fall.

Explanation of Solution

The given options:

• A drought that reduces the number of dairy cows causes the inputs required to produce ice cream to fall and thus will lead to a fall in the supply of ice cream.<
• A report which concludes that chocolate has significant health benefits encourages health-conscious people and they will demand more and thus will lead to a higher demand for chocolate ice cream.<
• An increase in the price of substitutes (vanilla ice cream) encourages people to consume less-expensive ice cream. Thus people will prefer chocolate ice cream over costly vanilla ice cream and as the result, the demand for chocolate ice cream will increase.
• New freezer technology that lowers the costs of ice cream production will encourage the suppliers to produce more and thus will lead to a higher supply of ice cream.<
• Ice cream toppings are a complementary good for ice cream production. A fall in the price of a complementary product leads to a higher demand for the original product. So, a fall in the price of ice cream toppings will cause the demand for ice cream to increase. 

So, a new technology that lowers the costs of ice cream production causes the supply of ice cream to increase and in turn reduces the price of the ice cream. A higher supply results in a lower price for the product.

Therefore, a new freezer technology will lead to a fall in the price of chocolate ice cream.

Option “d” is correct.

Economics Concept Introduction

Two possible factors will lead to a fall in the price of chocolate ice cream:

• An increase in the supply of ice cream and
• A fall in demand for ice cream