Sunday, February 17, 2008

Market Equilibrium: Disappearing Bees and Ice Cream

From CNN.com:
Premium maker Haagen-Dazs says vanishing bee colonies in the U.S. could mean fewer flavors and high prices.
So the product market is ice cream. The ingredients used as inputs in the resource market have suffered a supply shock to the left. Trace the effect of the adverse supply shock on the resource market to the final outcome in the product market. You should arrive at the same conclusion as Haagen-Dazs, who correctly states that this will lower quantity and raise prices in the market for ice cream.


Try it yourself, then check the comments for the answer to verify your work.

1 comment:

Justin M Ross said...

Resource Market: The supply shift to the left resulted in higher prices for inputs to the production of ice cream.

Product market (ice cream): A increase in the cost of inputs causes a supply shift to the left. This has the stated outcome of lowering output and increasing price.