Question

Susie and Sally open a lemonade stand in their neighborhood and within the first day, they sell out of lemonade in just a few hours. The next day, Susie and Sally again sell out of lemonade in a few hours. Because they can only carry so many supplies to their stand, they decide to raise the price of their lemonade. Susie and Sally's choice best demonstrates which of the following? A) comparative advantage B) supply and demand C) opportunity cost D) scarcity of resources

Answer 1

Susie and Sally's decision to raise the price of their lemonade due to them continually selling out represents the concept of supply and demand. The high demand coupled with their limited supply led them to increase prices, theoretically decreasing demand to meet their supply capabilities.

Step-by-step explanation:

Susie and Sally's choice to raise the price of their lemonade in their neighborhood stand best demonstrates the concept of B) supply and demand. This principle outlines how the price of a product or service is determined based on the relationship between its availability (supply) and the desire for its consumption (demand). In this case, because the demand for their lemonade was higher than their supply capabilities, Susie and Sally increased the price, expecting that the higher cost might reduce excess demand, thus ensuring their supplies last longer.

Despite this, it's important to keep in mind that if the price is set too high, they may lose customers to potential competition. This teaches a fundamental economic lesson: managing supply to meet demand, and adjusting prices as necessary, is a crucial part of running a business. This premise follows the law of supply and demand which states when demand exceeds supply, prices tend to rise. Conversely, when supply exceeds demand, prices tend to fall.

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