Question#1:

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.
Consumers will now demand more ice cream at any given price, represented by a rightward shift of the
demand curve. As a result, both equilibrium price and quantity rise.
 ii. There has been a decline in wages of all employees in Pakistan due to the third wave
of coronavirus.
A decrease in the wages causes an increase (rightward shift) of the short-run
aggregate supply curve.

iii. People in Pakistan decide to have more children.

If people decide to have more children, they will want more ice cream for their kids, so the
demand for ice cream will increase. Supply will not be affected. The result is a rise in both the
price and the quantity sold.
iv. Students of NED University develop new automated machinery for the production of
Ice Cream.
The development of new automated machinery for the production of ice-cream is an
improvement in technology. This reduction in firms' costs will result in an increase in supply.
Demand is not affected. The result is a decline in the price of ice-cream and an increase in the
quantity sold. This is represented by a rightward shift of the supply curve and results in a fall
in the equilibrium price and a rise in the equilibrium quantity.

v. There has been a decrease in people’s income due to COVID-19 crisi

 An increase in income results in demanding more services and goods, therefor spending more
money. A decrease in income results in the exact opposite meaning that when incomes are lower,
less spending will occur, and businesses would be hurt by the effect.

Question 2)