Final answer:
The equilibrium price of cakes is likely to increase due to a shift in resources from cake production to bread production. The effect on equilibrium quantity is uncertain without knowledge of the elasticity of demand but could potentially also increase if demand is inelastic.
Step-by-step explanation:
A rise in the price of bread, which is a substitute in production for cakes, implies that producers may shift resources from baking cakes to baking bread in order to take advantage of the higher price of bread. The equilibrium price of cakes is likely to increase since there would be a decrease in the supply of cakes with producers reallocating their resources. However, the effect on the equilibrium quantity of cakes is ambiguous without additional information on the elasticity of demand for cakes. In cases where demand is inelastic, the quantity may decrease as consumers continue to purchase close to the same amount despite higher prices. In contrast, with elastic demand, quantity may decrease significantly in response to the higher prices.
If we specifically consider the options provided, the most likely effect is option D: a price increase for cakes and a potential increase in the quantity of cakes sold if demand for cakes is inelastic and consumers view cakes as a more desirable option due to the increased price of bread.