Question

1. Drought in North and West Texas has had a severe impact on the cotton crop. Estimates are that the harvest of Texas cotton in November could be down by over 40%. a) Draw a supply and demand diagram as part of an explanation of why this might change the price of cotton today (Sept.20). (3 points) b) Describe how the results in (a) would impact the market for Men's dress shirts and the market for silk. For each market, draw a supply and demand diagram as part of your explanation. Be sure to be specific about what curve you shifted and why, as well as what happens to price and quantity in each market. (5 points) c) Suppose that the price of cotton in November after the harvest ends up being the same as the final price you identified in (a). Explain how this is possible by shifting two curves in the same picture. Describe what would be happening in November to cause this. (3 points)

Answer 1

Answer:

(a) In following diagram, DO as are introductory interest also, supply bends of cotton, converging at point A with starting value PO and introductory amount 00. In the event that there is a fall in collect, supply of cotton will fall, moving supply bend leftward to Sl, converging DO at point B with more significant expense Pl and lower amount QI.

, Бо 6

(b)

(I) Dress shirts use cotton as info, so dress shirt makers will encounter an expansion in input cost, and will bring down creation. Supply of dress shirts will fall, moving its stock bend leftward to Sl, crossing DO at point B with more significant expense Pl what's more, lower amount QI.

, Бо 6

(ii) Silk subs for cotton, so more significant expense of cotton will expand the interest for silk. The request bend will move rightward to Dl, meeting SO at point B with more significant expense Pl and higher amount QI.

| Тоо a, ai . a

(c) This is conceivable if there was a lessening in interest for cotton, which moved interest bend leftward. The leftward move popular bend was equivalent in size to the leftward move in supply bend, along these lines net impact on cost was zero. In following diagram, DO moves left to Dl, crossing Sl at point B, with value Pl and amount QI which is not exactly QO.

so Po Do do