LEMONADE STAND

ECONOMICS
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CHANGES IN
DEMAND
This is the story of Larrys Lemonade Stand. Larry needs to under-
stand economics, especially changes in equilibrium to be a success-
ful lemonade vendor. This chapter is all about Larrys customers and
the ways their demand for Larrys lemonade can change. Changes in
demand are caused by the different factors of demand. These can
include changes in the prices of substitute goods, consumer prefer-
ences, size of a market, and finally, complimentary goods. A de-
crease in demand would shift the demand curve to the left. An in-
crease in demand moves it to the right.
AN INCREASE IN DEMAND
An increase in demand can be pretty simple to see. The graph to
the right shows the demand curve - the downward sloping one -
shifting to the right. This shift to the right means that Larrys cus-
tomers demand more of his lemonade at every price.

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A DECREASE IN DEMAND
A decrease in demand is also not too tough. The graph to the
right shows the demand curve - the downward sloping one - shift-
ing to the left. This shift to the left means that Larrys customers
demand less of his lemonade at every price.

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SUBSTITUTE GOODS
Ever since President Trump took office, he has limited the ability
of the Chinese to dump cheap tea imports to the United States.
The Suzys Sweet Tea has taken a real hit. Lucky Larry gets his
lemons from local farmers. Many of Suzys customers went to
Larry after she had to increase her prices.

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 CONSUMER PREFERENCES
A recent study was completed by the Mayo Clinic. It found
that lemonade has the ideal amount of antioxidants for opti-
mal recovery after mowing the lawn on a hot day. Larry and
his lemonade stand continue to boom!

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SIZE OF THE MARKET
Larry just found out he can have his stand at the
Minnesota State Fair! With so many people he is
sure to see an increase in the amount of demand
for his lemonade.

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COMPLIMENTARY GOODS
Larry has long known that people eating BBQ always seem to
have a large need for his thirst quenching lemonade. The price of
pork though (the main ingredient for good BBQ) has gone up by
70% this year. With fewer people eating BBQ, fewer people want
lemonade. Poor Larry.

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2

CHANGES IN
SUPPLY
Larrys customers are not the only ones to think about
when it comes to changes in equilibrium. Many factors
can change how much lemonade Larry is willing to sell
at each price. The cost of inputs, the state of technol-
ogy, international events, and future expectations all im-
pact how much lemonade Larry will sell.
AN INCREASE IN SUPPLY
An increase in supply is easy to see on the graph to the right. In
this situation, Larry will supply more lemonade to his customers
at every single price.

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A DECREASE IN SUPPLY
To the right is a decrease in supply. Something has happened
causing Larry to offer less lemonade for sale at every price.

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COST OF INPUTS
Sugar has just risen in price by 50%. Since it costs him more
to make each glass of his refreshing lemonade, Larry has cut
back his overall production.

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STATE OF TECHNOLOGY
A revolutionary lemon juicer just came on the market. With
increased efficiency Larry is supplying more lemonade to his
customers than ever.

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INTERNATIONAL EVENTS
Droughts in other countries has reduced the amount of lem-
ons in the global economy. Even though Larry gets his lem-
ons from local farms, he is realizing that the global shortage
has raised the prices of lemons no matter where he buys
them. Frustratingly for Larry, he is forced to reduce the
amount of lemonade he provides.

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FUTURE EXPECTATIONS
Winter will be coming soon. No one buys Larrys lemonade
then. Larry is trying to sell his supply of lemonade now while
there is still demand for it.

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CONCLUSION

Larry hopes that now you have begun to understand some of the com-
plex ways that equilibrium can change. Many times there are factors
that a producer has no control over that can greatly change the
amount that they provide or that consumers demand.

Photo Credits:

All photos in this book came from the website: Pixabay.com and were
listed on the website as attribution free.

Graphs in the book were created by Tim Stark using Google Draw-
ings.

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