Answer:
Option b is correct.
when demand is greater than supply
Step-by-step explanation:
Suppose that a baker in a village can make 300 donuts in a day to satisfy the current demand of 50 families.
A year later, the population increased to 80 families and the entire village now demands 480 donuts a day.
Its maximum output a day is only 300 donuts for the current price it sells them for, to satisfy the demand the baker needs to hire a helper and more oven to meet current demand and in turn of it to increase his marginal cost.
Then, the additional cost of paying a wage for the helper and the cost of new equipment would force the baker to increase the price of the donuts to maintain its profit margin.
This extra cost to make additional items can increases the price of an item in demand.
