Answer to Question #176510 in Macroeconomics for Bubblys

Question

Increases in demand caused the price of cotton to more than triple between early 2010 and early 2011. Did cotton farming become a highly profitable industry as a result? Explain why or why not

Answer 1

Increases in demand caused the price of cotton to more than triple between early 2010 and early 2011 because the supply of cotton was limited and demand gets increased; due to demand and supply cotton industry's equilibrium demand shift to right and at that supply price gets increases and at that point of time cotton farming become a highly profitable industry as a result but after 2011 the supply also getting increases and then at that situation the demand was same.

so, high supply get the price down and the situation of high profit get back to normal again.

In short run the cotton farming become a highly profitable industry but in long term it cam back to normal profit.