Texas A&M University (TAMU) ECON 203 Principles of Economics Exam 1 Practice

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Suppose the cost of sugar, an input for making ice cream, increases. How would it affect the market for ice cream?

Equilibrium price will increase, equilibrium quantity will decrease

When the cost of an input rises, producers can supply less ice cream at any given price, so the supply curve shifts left. If demand for ice cream stays the same, this leftward shift means the market clears at a higher price and a smaller quantity. In other words, higher sugar costs push the equilibrium price up and the equilibrium quantity down. The other patterns would require demand to rise or supply to increase, which isn’t the case when an input cost increases.

Equilibrium price will decrease, equilibrium quantity will increase

No change in price or quantity

Both price and quantity will increase