You have 4 markets: Cotton, Cotton Shirts, Silk and Silk Shirts. In each of the following cases determine what happens to price and output in each of the markets. a) Severe weather conditions cause a reduction in cotton production b) A new treaty allows for increased imports of silk. c) Medical reports determine that synthetic shirts (substitutes for Silk and Cotton Shirts) may cause cancer d) A new advertising campaign increases preferences for cotton shir

a) Severe weather conditions cause a reduction in cotton production.

Cotton Market

Price will increase due to a shortage of cotton to reflect the new scarcity level.

Output will reduce due to a reduction in cotton production.

Cotton Shirt Market.

Price will increase due to the increase in the price of the raw material cotton being used to make the shirts.

Output will reduce due to the raw material being more expensive to source meaning a higher production cost.

Silk Market

Price will increase due to a rise in demand for silk since it is a substitute to cotton.

Output will increase as well due to producers wanting more silk so they can make more silk shirts.

Silk Shirt Market.

Price will increase due to a rise in demand for silk shirts as cotton shirts have become more expensive and scarce.

Output will increase as well to take advantage of a rise in demand by consumers who will want more silk shirts.

b. b) A new treaty allows for increased imports of silk.

Silk Market

Price of Silk will Decrease due to a reduction in supply costs as silk is now more accessible.

Output of Silk will Increase because more silk can now be acquired from outside.

Silk Shirts Market

Price of Silk shirts will reduce due to a reduction in Supply costs owning to easier sourcing of silk.

Output of Silk Shirts will increase because more silk can be acquired and used to make shirts.

Cotton Market.

Price of Cotton will reduce due to less demand in cotton and people are buying the cheaper silk.  

Output of cotton will reduce as people are buying more silk so there is less demand for cotton from producers .

Cotton Shirts

Price will Decrease due to decreased demand in Cotton shirts.

Output will decrease due to decrease in demand so producers will make less shirts to cater for that decreased demand.

c. c) Medical reports determine that synthetic shirts (substitutes for Silk and Cotton Shirts) may cause cancer.

Silk Market

Prices will increase due to increased demand as more people flock to both silk and cotton to avoid cancer risk.

Output will increase to match the demand from producers who want to make more shirts for people coming for silk shirts to avoid cancer.

Silk Shirt Market

Prices will increase due to increased demand from people running from the other materials that could potentially cause cancer.

Output will increase as well as producers make more shirts to match demand.

Cotton Market

Price will increase as producers demand more cotton to make more shirts.

Output will rise as well as producers Demand more cotton to make more shirts.

Cotton Shirt Market.

Prices will rise owing to increased demand in cotton shirts and silk shirts.

Output will rise as producers produce more shirts to match increased demand.

d) A new advertising campaign increases preferences for cotton shirts.

Cotton Market

Prices will increase as Producers demand more to make more shirts for people.

Output will also increase to match the demand from producers who want to make more shirts.

Cotton Shirt Market

Prices will rise owning to increased demand from people who now have a preference for cotton.

Output will increase so that Producers may be able to match the increased demand.

Silk Market.

Prices will reduce as less producers demand less silk due to a reduction in demand for silk shirts.

Output will reduce as well as producers do not what to make as many shirts owning to a decreased demand.

Silk Shirt Market

Prices will reduce as a result of the reduced demand in silk shirts owing to a new Preference for cotton shirts.

Output will reduce as well because Producers will make less shirts to match the lower demand.

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