Answer to Question #235187 in Microeconomics for sri

Question

According to the sources, people of our country started liking sweaters made out of wool that primarily comes from sheep. Analyze the following situations and examine the impact on demand and supply of both quantities and price of woolen sweaters. a) Due to the complexity of raising sheep, the farmers have reduced the number of sheep by fifty percent. These farmers supply wool to the factories that manufacture sweaters. b) Also, according to the sources, wool is an excellent temperature regulator. Therefore, it is proved to have good health benefits. c) In the market, there is artificial yarn, used to manufacture switchers similar to wool, available at lower prices. d) Of late, there are new and improved technologies are available to manufacture woolen sweaters with lesser quantities of raw material, leading to a reduced cost of manufacturing woolen sweaters.

Answer 1

(a) The quantity of sweaters supplied will decrease due to a decrease in raw material i.e. wool and thus the price of sweaters will increase.

(b) The quantity of sweaters demanded will increase and therefore the prices of the sweaters will go up.

(c) The quantity of woolen sweaters demanded will reduce and their prices will also decrease due to low demand.

(d) Due to decrease in cost of manufacturing woolen sweaters, more quantities of woolen sweaters will be supplied and at a lower price.