Economics 7

ECONOMICS



In this essay, it gives a brief description on starting up an ice cream parlor and its relation to demand and supply. The ice cream parlor is called “You scream ice cream”.   In Economics, supply and demand are one of the fundamental concepts. Market price for any commodity is determined by the outcome of demand and supply (Economics, 2010, Paul Anthony Samuelson).
A market is a group of buyers and sellers of a particular good or service. Quantity demanded is the amount of a good that buyers are willing and able to purchase. Demand is a full description of how the quantity demanded changes as the price of the good changes (Investopidea, 2011). The demand of ice cream depends on various factors such as Price–the higher the price, the less you buy. Income–for normal goods, the higher your income, the more you buy.   For inferior goods, the higher your income, the less you buy. Prices of related goods–frozen yogurt are a substitute for ice cream, so when its price goes up, more ice cream is demanded.   Hot fudge is a complement for ice cream, so when its price goes up, less ice cream is demanded. Tastes–when tastes change, the quantity demanded changes.   For example, our taste for ice cream might depend on the weather.
Expectations–expectations about future income or prices affect the quantity demanded today. The demand schedule and the demand curve show the relationship between the price of a good and quantity demanded of that good. Ceteris Paribus means “other things being equal”.   All variables affecting demand other than price are assumed to be fixed when we are talking about a particular demand curve. A change in the price changes the quantity demanded, so we move along the demand curve. A change in income, prices of other goods, etc. increases or decreases demand, so the demand curve shifts. The market demand curve is the sum of the demand curves of all the buyers (Investopidea, 2011).
Quantity supplied is the amount of a good that...