Question

6 Reply John Perry Friday Cotton is an interesting market---and there was a pretty massive spike in the price. I remember the spike because from ábout 2009 to 2012 1 put on a conference and part of that was providing a t-shirt. Well, guess who was shocked when they went to get price quotes for cotton t-shirts? This guy! So, a natural question is what happened? Why did cotton spike like it did? Another interesting question, is what do you think happened to the clothes market say the shirt market-with this large change in the price of cotton? Thoughts? Dr. John You have no incoming announcem e Classroom Show All Announcements

Answer 1

(a)

An increase in price of cotton may arise from demand side or supply side factors. If demand for cotton increased, the demand curve shifted rightward, increasing price (and increasing quantity) of cotton. If, on the other hand, supply of cotton decreased, the supply curve shifted leftward, increasing price (and decreasing quantity) of cotton.

(b)

Since cotton is an input to clothing, higher price of cotton will increase the input and production cost in clothing industry, so firms will decrease supply. The supply curve will shift leftward, increasing price (and decreasing quantity) of clothing.