Impact of an Increase in Demand on the Ice Cream Industry
What will be the impact of an increase in the demand for ice cream?
If the ice cream industry is a competitive price-taker market and all ice cream producers are earning zero economic profit, what will be the impact of an increase in the demand for ice cream?
Final answer:
An increase in the demand for ice cream in a competitive price-taker market would lead to an increase in the quantity of ice cream produced and sold, but it would not affect the price or the economic profit of individual ice cream producers.
In a competitive price-taker market, firms have no control over the price of their product and are price takers. This means that they must accept the market price determined by the forces of supply and demand.
When the demand for ice cream increases, the demand curve shifts to the right. This indicates that consumers are willing to buy more ice cream at each price level. As a result, the equilibrium quantity of ice cream produced and consumed in the market increases.
However, since the ice cream industry is a competitive price-taker market, the price of ice cream remains the same. Individual ice cream producers cannot increase the price to take advantage of the increased demand. They must continue to sell their ice cream at the market price.
Therefore, the impact of an increase in the demand for ice cream in a competitive price-taker market is an increase in the quantity of ice cream produced and sold, but no change in the price or the economic profit of individual ice cream producers.