So last night, my date introduced me to the wonderful world of cupcakes.  Red Velvet cupcakes to be exact (Penn Quarter near Chinatown).  And before last night, I was not a believer.

So what is behind the rise in the popularity behind the elusive world of cupcakes?  Though my Red Velvet was super sweet and delightfully delicious, it wasn't something to write home about or nutritious enough to substitute for lunch or dinner.

So clearly, the cupcakes are considered a luxury item.  And with prices that surpass $3 per cake, sampling a few can easily set you back $15-20.  (For this price, I could buy a burrito and a six pack of domestics)

The production of cupcakes is relatively inexpensive.  There are only a few flavors, the raw material is cheap and so is the labor to produce and sell. In addition, product inventory is low and since all their stores are tiny matchboxes, with lines that stretch outside a block long, the amount of rent they pay is minimized (they should pay the city for renting out the sidewalk).

Since there were only a handful of favors (Red Velvet and Chocolate), Process Costing  (used in companies that make many units of similar products) equals Total Manufacturing cost/Total Unit Produced.

Cupcakes seem to sell well without much marketing. All you need to do is head for the long lines.  Thus, they are able to bring in a lot of customers without having to spend much on overhead (marketing).  The women are crazy over it, and the men are lining up because their girlfriends asked them to do it.

With a low manufacturing overhead cost, their Predetermined Overhead Rate is also relatively low.

So with high revenues, do things look all rosy for the cupcake industry?  For the time being, yes, but in the long run -- a different picture.

First, I'm willing to stick my neck out and say that the cupcake industry is benefitting from its recent wave of popularity (Thanks to Sex in the City) as well as the downturn in the economy (Most people consider cupcakes as an affordable luxury -- a way to feel good about rewarding yourself with a trendy cupcake without breaking the bank).

Since it's relatively easy to make cupcakes (I'm sure even I could learn how to if I had the patience), and the start-up investment costs is much smaller than opening a cafe or restaurant, there currently is new competition sprouting up all over town.  I bet it won't be long before they open up cupcake kiosks in Giant and Safeway.

Huge returns naturally attracts competition.  Extra competition attracts capacity.  Now with more supply, the cupcake stores' incentive is to lower prices so that they can retain some of that business. 

Meanwhile demand remains constant and may decline over time, as people lose their adoration for them and the men get tired of waiting those long lines or realize this is wrecking havoc on their diets.

So, despite my great experience with Red Velvet (thanks to my friend), I'm not yet hooked (like I am for stand-up paddling) and fortunately for us, with new competition and lower prices, things don't look all rosy for the cupcake industry.

Yes, my friend, there will be a $1 cupcake in the not too distant future.

Last week, Chairman Gray soundly beat incumbent DC Mayor, Adrian Fenty.

Gray won mostly from votes in the predominantly African American neighborhoods east of the Anacostia River (83% in Ward 8)

One of Gray's top campaign promises is to bring jobs and economic development to the high unemployment communities (Unemployment tops 28%)

It's foreseeable that Gray can get this done.  He has lived in this community for many years and major developments are already happening today.

The Department of Homeland Security is currently building their headquartes in St Elizabeths (billed as the largest construction project in the history of the U.S. General Services Administration)
This project is expected to bring more than 30,000 jobs (both direct and indirect employment) during its duration with a payroll earnings of approximately $1.2 billion.

Gray will ensure that these projects hire local Washingtonians first and that Ward 8 will be the first to benefit.  More local jobs mean more social services and less drugs.  Everyone knows that illicit drugs is a major source of crime (both violent and petty).

So, provided that the economy in Ward 8 improves drastically over the next four years, meaning more jobs for the residents and higher Gross Domestic Product, the crime rate will surely decrease.

Here is a Supply and Demand model where the X-axis is GDP and the Y-axis is money.

Over time, as the economy improves and so does the GDP, the amount of wealth within the community increases.

With more jobs, greater wealth, the rate of crime (drug related, robbery, assault, rape) will also decrease.

So things are no longer looking Gray for Southeast.