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Dream Cakes Supply Shortage? April 29, 2010

Posted by Avu in Section 2, The Economist Outside of Class.
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For several months now, a philanthropic student, Azar, has been trolling the halls of CA selling her so called “Dream Cakes” to raise money for poor people or something like that I think. Well, it’s a wonderful idea, and it has worked marvelously in raising money for poor people. However, there has been a tragic problem. Supply is short; shorter than Nate Robinson. Therefore, to respond to market forces, Azar could do many things. Firstly, she could increase supply, in order to combat the excess demand at the current price of 200 yen. Otherwise, she could drive up the price to somewhere close to 300 yen. Both of these solutions could easily shift the demand and supply towards market equilibrium.

There is also a new development. Though there have been massive shortages in past weeks, last week, Azar ended up with a surplus. A small surplus, but a surplus nonetheless. This is perhaps because of the departure of the seniors, a notable part of the market. The market is therefore smaller, and demand has sadly decreased. Perhaps Azar can maintain the prices, but she should be wary of that invisible hand that choose to poke her around.

The current quantity is at Q1, which is well below the equilibrium. As a result, supply is much lower than demand, and there is a large shortage.