A survey indicated that chocolate is the most popular flavor of ice cream in America. For each of the following, indicate the possible effects on demand, supply, or both as well as equilibrium price and quantity of chocolate ice cream. a. A severe drought in the Midwest causes dairy farmers to reduce the number of milk-producing cattle in their herds by a third. These dairy farmers supply cream that is used to manufacture chocolate ice cream. b. A new report by the American Medical Association reveals that chocolate does, in fact, have significant health benefits. c. The discovery of cheaper synthetic vanilla flavoring lowers the price of vanilla ice cream. d. New technology for mixing and freezing ice cream lowers manufacturers' costs of producing chocolate ice cream.

The severe drought will cause dairy farmers to reduce the number of milk-producing cattle, which will lead to a reduction in the supply of cream used to manufacture chocolate ice cream. This is a change in the input cost for producing chocolate ice cream and hence will affect the supply of ice cream. Effect on Supply: Decrease As the supply of a key ingredient (cream) decreases, the production cost of chocolate ice cream will increase, leading to a decrease in the supply of chocolate ice cream. Effect on Demand: No change The drought does not affect the preferences or incomes of the consumers directly. Hence, the demand for chocolate ice cream will not change. Equilibrium Price: Increase Equilibrium Quantity: Decrease With a decrease in supply and no change in demand, the equilibrium price will increase, and the equilibrium quantity will decrease.

A new report stating that chocolate offers health benefits will affect the demand for chocolate ice cream. Effect on Supply: No change The new report does not affect the production cost or methods of producing chocolate ice cream. Hence, the supply of chocolate ice cream will not change. Effect on Demand: Increase The report informs consumers of additional benefits of consuming chocolate, leading to an increase in the demand for chocolate ice cream due to improved consumer perception. Equilibrium Price: Increase Equilibrium Quantity: Increase With an increase in demand and no change in supply, the equilibrium price and quantity will both increase.

The discovery of cheaper synthetic vanilla flavoring will affect the price of vanilla ice cream, a substitute good for chocolate ice cream. Effect on Supply: No change The cheaper synthetic vanilla flavoring does not impact the production cost or methods of producing chocolate ice cream. Hence, the supply of chocolate ice cream will not change. Effect on Demand: Decrease As the price of vanilla ice cream decreases, some consumers may switch from chocolate to vanilla ice cream, leading to a decrease in demand for chocolate ice cream. Equilibrium Price: Decrease Equilibrium Quantity: Decrease With a decrease in demand and no change in supply, the equilibrium price and quantity will both decrease.

The introduction of new technology that reduces the cost of producing chocolate ice cream will affect its supply. Effect on Supply: Increase As the production cost decreases due to the new technology, manufacturers can produce more chocolate ice cream at lower costs, resulting in an increase in supply. Effect on Demand: No change The new technology does not affect the preferences or incomes of the consumers directly. Hence, the demand for chocolate ice cream will not change. Equilibrium Price: Decrease Equilibrium Quantity: Increase With an increase in supply and no change in demand, the equilibrium price will decrease, and the equilibrium quantity will increase.