How scenario might affect the supply of cupcakes

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Reference no: EM133809068

Question: Distinguish between a change in demand vs. a change in quantity demanded: What factors besides price could cause a shift in the overall demand curve for cupcakes? (e.g., income levels, popularity of cupcakes) Get Help Now!

Explain how this scenario might affect the supply of cupcakes: How might existing bakeries react? Would there be incentive for new entrants into the cupcake market? How would these changes be reflected in the supply curve?

Market Equilibrium: At the new equilibrium price point, why will the quantity demanded equal the quantity supplied?

Government Intervention: Suppose the local government, concerned about affordability, sets a price ceiling below the equilibrium price. Using graphs, illustrate the effects of this price ceiling on the market for cupcakes.

Who benefits and who suffers from the price ceiling?

Are there any potential unintended consequences?

Explanation:

This question tests your understanding of several key concepts from the chapter objectives:

Demand vs. Quantity Demanded: A change in demand refers to a shift in the entire demand curve, caused by factors other than price. A change in quantity demanded refers to a movement along the existing demand curve due to a price change.
Supply and its determinants: The influx of new bakeries would increase the supply of cupcakes, shifting the supply curve to the right.
Market Equilibrium: At the equilibrium price, both buyers and sellers are satisfied. The quantity demanded by buyers exactly matches the quantity supplied by sellers.
Price Ceilings: A price ceiling set below equilibrium creates a shortage because the quantity demanded exceeds the quantity supplied at that price. Consumers might benefit from lower prices, but producers would be discouraged from supplying cupcakes, potentially leading to shortages.

Reference no: EM133809068

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