Question

Sabrina decided to start selling lemonade on her street. The other kids in the neighborhood noticed that Sabrina was making a lot of money selling lemonade. These kids decided to open their own lemonade stand. When they opened their own lemonade stand, the equilibrium price ________ and the equilibrium quantity ________.
A. decreased; decreased
B. decreased; increased
C. increased; increased
D. stayed the same; stayed the same
E. increased; decreased

Answer 1

Answer:

The correct answer is (b)

Explanation:

The kids opened their own lemonade stand which led to an increase in the overall supply of lemonade. The increase in the overall supply of lemonade will lead to a decrease in the equilibrium price. Now, Sabrina must decrease the price of lemonade to compete with competitors. Increase in market competition always leads to a decrease in equilibrium price.