2. Assume the market for doughnuts is in equilibrium. On the graph below, first draw the market in equilibrium (label it E1; with equilibrium quantity Q1 and equilibrium price P1). (2p)

Then, show the effect of an increase in the prices of flour (the main ingredient in doughnuts) that happens at the same time as an increase in the number of buyers. Show the changes on the graph below (new equilibrium E2, with new equilibrium quantity Q2 and new equilibrium price P2). (2p)

Step 1: (0.5p) Which curve(s) shift? _______________________________________

Step 2: (0.5p) In which direction? _______________________________________

Step 3: (1p) The new equilibrium has ________________ P and a _____________________ Q.

graph: P= Y

Q (doughnuts)=X