Consider the market for cake. For each of the following
scenarios, draw the supply and the demand curve in a well-labelled
figure illustrating the change. Also explain each change in at most
three short sentences sentences. [Note: All the changes are in the
short run.] (a) (5 marks) A rise in the price of cake. (b) (5
marks) A fall in the price of bread (which a substitute good for
cake). (c) (5 marks) A rise in the income of consumers of bread
(assume cake is a normal good). (d) (5 marks) A rise in the cost of
sugar (which is an input for cake production). (e) (5 marks) An
expectation that there is a technological innovation that will
reduce the cost of cake production significantly in the very near
future.
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