Why does the price of an item increase when it is in demand

Suppose that a baker in a village can make 200 donuts in a day to satisfy the current demand of 40 families. A year later, the population increased to 80 families and the entire village now demands 400 donuts a day. The baker's maximum output a day is only 200 donuts for the current price it sells them for, to satisfy the demand, the baker needs to hire a helper and an extra oven to meet the current demand and in turn increase his marginal cost. 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 their profit margin. This extra cost to make additional items can drive the price of an item in demand.

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