# The Ice Cream Stand

### INTRODUCTION

You will learn about the economic principles of supply, demand, price, and competition. At the end of the lesson you will work in groups to create ice cream stands, where you will sundaes and milkshakes. Since each group will not have enough ingredients to run their stands successfully, you will have to develop a plan to get the supplies you need from other groups in order to make the sundaes and the milkshakes. Your goal is to make the best sundae and milkshake you can at a competitive price, which also will turn a profit. Thus, keeping costs down is quite important. You also want to have an attractive ice cream stand. A group of adults will buy a sundae and milkshake from each of the competing groups. Each adult also will independently choose the best-looking ice cream stand and the quality of their sundae and milkshake.

After you learn about the concepts of supply, demand, and price, you will create an ice cream stand where you will sell sundaes and milkshakes. You will try to create an attractive looking ice cream stand where you can sell sundaes and milkshakes that taste good at a competitive, profit-making price. You will also be able to explain how supply and demand affect price.

### PROCESS

Before beginning the lesson be prepared to answer the following questions:

1. List five items you would like to buy if you had the money to buy them.
2. List five items you would like to sell if you could find a buyer for these items.
3. How do you think the price for an item is established?
4. How do you think suppliers of that product decide how many products they should produce?

Now that it is time to move on to the demand portion of the lesson, your teacher will ask you the following questions. How many World Series tickets would you be willing to buy at \$20.00 each? How many would you be willing to buy at \$50.00 each? At \$100.00 each? At \$500.00 each?

1. What happens to the amount of something you want to buy when its price goes up?
2. What happens to quantity demanded as the price rises?
3. Describe the relationship between quantity demanded and price.
4. Your teacher will introduce the New York Yankees example. As a class, you will discuss the difficulty the Yankees have had selling their premium seats in the new stadium (some seats cost several thousand of dollars). Be sure to read the article Empty Seats Make Yankees Cut Some Premium Prices .

Now it is time to move to the supply portion of the lesson, and your teacher will ask you the following questions.

1. How many of you would be willing to babysit for \$1.00 an hour? For \$5.00 an hour? For \$10.00 an hour? For \$20.00 an hour?
2. What is the relationship between quantity supplied (of babysitting labor, for example) and price?
3. Does it makes sense to sell a product for less than the supplier paid for it?
4. Next, read the article Economics Basics: Demand and Supply to review the principles of supply and demand.

Now you will determine how market price is established.

1. Let's assume that at 40 cents a bottle the demand  is 100 bottles of soda (pop). At \$1.00 a bottle, the demand is 75 bottles. At \$2.00 a bottle, the demand is 30 bottles. At \$5.00 a bottle, the demand is 2 bottles. Place this data on the graph in the Appendix.
2. Let's assume that at 40 cents a bottle, suppliers would provide no soda. At \$1.00 a bottle, supplies would provide 75 bottles. At \$2.00 a bottle, suppliers would provide 250 bottles. At \$5.00 a bottle, suppliers would provide 500 bottles. Place this data on the graph in the Appendix.
3. After you connect the dots for demand and supply, the graph will show the market clearing price or the market equilibrium price. This is where quantity demanded equals quantity supplied. The market is cleared at this price. If price is higher than the market price, there will be a surplus in the market. If price is lower than the market price, there will be a shortage. In both instances, the market price will have to move up or down to clear the market. Show this using the graph in the Appendix. You may also want to revisit the website Economics Basics: Demand and Supply at this time.
4. Then, visit Morrows Dump Milk To Protest Low Price to learn why farmers are deliberately dumping milk.

The following activity is designed to help you understand the main concepts within this lesson. After you and/or your teacher has explained and understand the concepts of supply, demand, and price, you will be ready for the class activity.

1. Your group will create an ice cream stand, where you can make sundaes and milkshakes. You will be judged on three points. One point is the attractiveness of your stand. Another is the taste of the sundae you make (Does it taste good?). The final point the taste of the milkshake. (Does it taste good?). A group of adults will independently do the judging. The teacher will pay \$15.00 to the team for the best stand, \$15.00 to the team with the best sundae (plus the price of the sundae), and \$15.00 to the team with the best milkshake (plus the price of the milkshake). Your group must set a price for their sundae and their milkshake which will allow them to make a profit. The price of the sundae and the milkshake will be a factor in deciding which one is best. Your group must set a price for your sundae and your milkshake; the price you set must allow you to make a profit. The price of the sundae and the milkshake will be a factor in deciding which one is best. The cost of making one sundae is 25 cents, plus the cost of any supplies you had to buy; the cost of a making one milkshake is 35 cents, plus costs.

2. You will need to develop a plan for obtaining all of the necessary ingredients for making your sundae and milkshake. No group will have all of the necessary ingredients. Your group will need to work well as a team, divide jobs, and formulate a plan for obtaining the ingredients your group will need.

4. Each adult will independently judge all the stands and products after the activity is completed.

### CONCLUSION

You now have an idea of how price gets determined. It is based on supply and demand. In running a business such as an ice cream shop, business skills are essential. Developing a business plan is crucial to being successful in the real world. Understanding the forces of supply and demand as well as competition in the marketplace are essential to being successful in the real world.

### ASSESSMENT ACTIVITY

You will write a brief paragraph explaining how forces of supply and demand determine price. Also you will write about what did or didn't make your group successful in this activity. Finally, you will write a paragraph explaining three or four specific ideas you learned from this lesson.

### EXTENSION ACTIVITY

Explain why the Cash for Clunkers program has been so successful. Explain how forces of supply and demand worked in with the application of this program.

What might happen to cars sales once the money for this program runs out?

Are there some items you would buy no matter what they might cost? What might these items be? Why would you buy them if they were really expensive?

Would you ever be willing to sell something at a loss? Why?