Econ 12 Extra Credit Assignment
John’s Lemonade Stand
It was the first day of John’s third grade summer and he was just waking up from a deep sleep. The bright sun was beginning to hit his face as he tossed and turned trying to revisit the dreams that had entertained him all night long. Finally, after ten minutes of continuous tossing and turning he sat up, put on his slippers, and walked down the stairs to start the first day of his summer vacation.
John walked past his Mom who was busy talking to an old college friend on the phone. He smiled at her as he walked towards the refrigerator where the milk was beckoning. He poured himself a tall glass and immediately plopped himself on the couch for a day of what he hoped was full of cartoons. He found the remote control wedged in between the cushions of his Dad’s favorite leather couch. Just as Looney Tunes was coming back from its first commercial break, John heard his Mom hang up the telephone and start walking towards the family room.
“Hey buddy,” she said. “How does it feel not having to wake up and go to school?”
“Great,” John replied. “I just saw that Looney Tunes is having an all day marathon. I can’t wait to see the one…”
“Oh you’re not sitting in here all day doing nothing!” His Mom immediately announced. She walked over to the window and opened the blinds and let the sunlight from the gorgeous blue sky pour in. “It’s a beautiful day and you’re going to be outside doing something. I will not allow you to just sit in hear and watch T.V. all summer long. Nope, it’s not going to happen.”
“But Moooooooom.” John whined. “What am I supposed to do all day long?”
“When I was your age my friends and I used to set up a lemonade stand. It was always so much fun and we usually made enough money to go to the movies every night.”
“Alright Mom, I’ll try the lemonade stand out, but if I don’t get any customers I’m coming right back inside.” John sighed as he got up and brushed past his Mom so he could change into something besides his pajamas.
After his Mom had cooked him some scrambled eggs for breakfast, John went into his refrigerator to take out the huge pitcher of Lemonade that his Mom had made up for him while he was changing. He went into the garage and grabbed a big piece of cardboard and wrote in big black letters, “Lemonade ¢ 50.” He pulled the small table that his Dad used to clean his tools outside and grabbed a stool from the kitchen. He taped the large piece of cardboard to the table and put the big pitcher of lemonade on the table with a bunch of clear plastic cups.
Not five minutes went by before John’s first customer walked up with her dog. John poured her a glass of the ice cold lemonade and the woman gave John ¢50 from out of her pocket.
Next, a guy in a black car slowed down to a crawl, pulled into John’s driveway and ordered three glasses of lemonade for himself and the two kids in the back of his car. The man gave John $2 and told him to keep the change. By the time John’s Dad had arrived home from work around 5 P.M., John had learned how to make his own lemonade and earned $40. He had gone through three pitchers of lemonade and was begging his Mom to run to the store and buy ten cans of the Minute Made Lemonade concentrate. John was just as proud of himself as his parents were of him. His Mom assured him that she had never made $40 during a single day. John called his friend Stewart who lived two driveways down to inform him of his great success. He told Stewart how to make the lemonade, what prices he was charging, and about the huge sign he had constructed. John hung up the phone eager to wake up the next morning.
The next morning, excited at the prospect of making more money, John woke up and immediately went into his closet and threw on some clothes and ran into the kitchen to make his first batch of lemonade. After he got everything set up outside on his driveway, John sat down and waited for his first customer to arrive. He saw the same woman walking down the street walking her dog that was John’s first customer the day before. When she was about a block away, John pulled out a cup and began filling it with the ice-cold lemonade figuring she had come back for more. Instead of heading directly to John’s booth, the woman stopped a couple driveways down and disappeared behind the tree that obstructed the view of Stewart’s house. The woman reappeared with a red glass in her hand. As she walked by John’s lemonade stand she smiled and said, “It looks like you have a little competition.”
John stood up and walked into the street only to see his friend Stewart in the driveway sitting behind his own sign that read, “Cold Lemonade ¢ 40.” John couldn’t believe it. He stormed back to his garage and grabbed another piece of cardboard and rewrote the sign to say “Ice Cold Lemonade ¢ 40.” John attached the new sign and sat back down, hoping he would still get some business.
At the end of the day, John had still made more money than his Mom ever made, but he had only made half as much as he had the day before. He had only gone through a pitcher and a half of lemonade and was concerned with what Stewart was planning on doing tomorrow. But little did John know that Stewart was busy calling his friends and telling him about the $20 that he had made that day.
The next day when John went outside to set up his stand, he walked down the street both ways and noticed two other Lemonade stands besides the one that Stewart had constructed. John squinted to read the signs, both signs advertised their lemonade for ¢25. John couldn’t believe it, he couldn’t sell his lemonade anymore at ¢40, much less the ¢50 that he had charged two days earlier. John was forced to go into his garage and tear off another piece of cardboard and advertise a new price for his lemonade. Even though the work and the lemonade was the same as it had been two days earlier, the competition in the neighborhood had caused John to cut his price in half simply to compete. At the end of the day he had only made $5 and was pondering whether he still wanted to continue in the lemonade business.
John knew that all of the lemonade was the same for the four lemonade stands. He also knew that all four stands would end up charging the same price because whenever one would drop their price all of the others would do so as well. $5 wasn’t the kind of profit that he was looking for. He made $5 a day in allowance. John felt like all of his friends were selling identical products at identical prices. What was the point?
John again called Stewart who in turn called the other lemonade vendors in the neighborhood. Collectively, they all made an agreement to work together so that all of them would be able to make the kind of money that John was able to enjoy the first day. They all agreed to form one lemonade stand from which all of the profits would be equally shared. This way they could raise the price and not have to worry about the competition.
The agreement worked, their daily profit went up to $80 as they upped the price of their lemonade to $1 a glass. John worked with the customers because he had a way with dealing with people. They used Stewart’s driveway because it gave the easiest location for cars to pull into. The other two kids were constantly busy producing more lemonade because their parents always bought the lemonade in bulk. The four of them ran the lemonade stand all summer long until the weather began cooling down and people stopped craving ice cold lemonade. The four agreed they would form the same king of agreement next summer. But all the while, John was wondering what kind of things did people crave during the fall season?