When does the price of an item increase?

When the demand for an item becomes larger than the supply of the item, the price of the item increases. To understand why this happens, consider the following scenario.

Suppose Keri runs a cupcake business, and right now, she makes and sells 120 cupcakes per day, so both her supply and demand are 120 cupcakes. Over the next month, word gets out about how great her cupcakes are, and suddenly more people are demanding her cupcakes. So much so, that she needs to double her supply to keep up with the demand. To do this, she needs to purchase more baking supplies, use more electricity, and she may have to hire some more help to make this number of cupcakes each day. This increases her own costs, so she has to increase the cost of the cupcakes to compensate for this. This illustrates why the price of an item increases when demand becomes larger than supply.