Repeat Problem 1, but now assume that an increase in the price of pie shifts the supply curve for cake upward, and an increase in the price of cake shifts the supply curve for pie upward (because a higher price of either good attracts more bakers into the market).
In Problem 1
Suppose that the demand for pie doesn't depend on the price of cake, and that the demand for cake doesn't depend on the price of pie. An increase in the price of pie, however, shifts the supply curve for cake downward, while an increase in the price of cake shifts the supply curve for pie downward (because bakers spend more time making the more profitable product). Assume that demand curves slope downward and supply curves slope upward. Using graphs show how to construct the market clearing-curves for pie and cake. Do they slope upward or downward? Again using graphs, illustrate the effects of sales tax on cake. Does the cake price change more in general equilibrium or partial equilibrium?