Consider a market for Ice Cream an inferior good in Pakistan. For each of the given events, identify which of the determinants of the demand or supply are affected. Also indicate whether demand or supply increase or decreases. Then draw a diagram to show the effect on the price and quantity of Ice Cream.
i. News reports claim that the consumption of Ice Cream is good for the health of coronavirus patients. (1 Mark)
ii. There has been a decline in wages of all employees in Pakistan due to the third wave of coronavirus. (1 Mark)
iii. People in Pakistan decide to have more children. (1 Mark)
iv. Students of NED University develop new automated machinery for the production of Ice Cream. (1 Mark)
v. There has been a decrease in people’s income due to COVID-19 crisis.
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Explanation:
In the first case, if it is assumed that ice cream is beneficial against coronavirus then demand of ice cream will increase
In the second case, when wages will decline, people will tend to buy less ice cream so its demand will reduce
In the third case, with more children, we can expect an increase in demand
In the forth case, with more automation, supply of ice cream can be increased
in the fifth case, when income will reduce, ice cream consumption or demand will reduce also
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