Honestly, If I'm going to pay $4 for a simple cupcake, it had better be the best tasting cupcake I have ever had. I too, go from bakery to bakery, sampling what they have to offer. The best cupcake I ever had was $1.75. I don't assume that the more expensive product is going to taste better. You hope so, but most of the time I'm really disappointed. And then I'm mad that I wasted my money.
I like the idea of dressing up your stand with table cloths and flowers. Also, I agree that there will be waste that you need to consider. I would make mini cupcakes for people to sample. If they are truly delicious, people will pay whatever price tag you put on them. I honestly think that you'll have much more in sales, if you do the samples, than if you don't. Just factor the samples into your cost. There will probably be a lot of other vendors selling baked goods. I think the display and samples can really set you apart, regardless of price. Also, be sure to have your business cards, your labels with your phone #, etc. Every person is a potential customer for cakes down the road, even if they don't buy something from you that day. Be positive, smile, and look like your having fun! People will gravite towards you. Good luck!
I like the idea of dressing up your stand with table cloths and flowers. Also, I agree that there will be waste that you need to consider. I would make mini cupcakes for people to sample. If they are truly delicious, people will pay whatever price tag you put on them. I honestly think that you'll have much more in sales, if you do the samples, than if you don't. Just factor the samples into your cost. There will probably be a lot of other vendors selling baked goods. I think the display and samples can really set you apart, regardless of price. Also, be sure to have your business cards, your labels with your phone #, etc. Every person is a potential customer for cakes down the road, even if they don't buy something from you that day. Be positive, smile, and look like your having fun! People will gravite towards you. Good luck!
I live in a large Canadian city...over 1 million people.There is 1 major cupcake place here that just opened up their second location.They charge $2.95 per cupcake $36.00 per dozen and many times they are out before 1pm and they don't rebake!! They are lined up always...and for why..I'm not sure because I have had their cupcakes and they are not that good. 
Same old dry cake and sweet gritty icing just swirled ontop.They package them up in these expensive brown boxes with satin ribbon so that is probably where your money is going to is to pay for the expensive packaging!!Now having said that....the marketing idea is working!! Yes...the economy is playing a huge role in what people are spending their money on but I don't see coffee places like Tim Horton's or Starbucks parking lots empty...rather busier than ever.People want a treat that is affordable like coffee and a cupcake.They will pay a bit more for a good..and bad product for that matter..they just don't know the difference between a Great cupcake like we bake 
As for overhead....customers don't need to know if you have overhead..Go to the Farmers Market and set out your goods and be confident that what you bake is the best in town...and price it at that!! If people don't buy then you can adjust for the week after but don't give your goods away! I was at a bake sale at Christmas and ladies who had different tables were selling pastries/turnovers for 6/$8.00 and cupcakes for $2.50 each and breads for $3-4 a loaf etc...the tables were empty!! And me..I just wanted a home made cinnamon bun and I paid $8.00 for 6 and they were dam good!! 
Good luck at the market!!
