Answer to Question #240697 in Microeconomics for rap

Question

2. Using supply-and-demand diagrams, show the effect of the following events on
the market for sweatshirts.
a. A hurricane in South Carolina damages the cotton crop.
b. The price of leather jackets falls.
c. All colleges require morning calisthenics in appropriate attire.
d. New knitting machines are invented

Answer 1

a) Assuming sweatshirts are made up of cotton, the destruction of cotton crop will mean lower supply of sweatshirts. Thus the supply curve will shift towards upwards i.e. fall in supply at every given price. In the figure, the supply curve shifts from S to S' and the demand curve remains the same. Thus the equilibrioum moves from point A to B. The final equilibrium has higher price and lower quantity supplied and demanded.

b) If the leather jacket price falls, it being a substitute of the sweatshirts mean that the demadn for the sweatshirt will shift to the left. The supply curve stays fixed. Thus the fall in demand means that the price and quantity of sweatshirts will fall. The demand curve changes from D to D' and the equilibrium moves from A to B

c) Sweatshirts are not proper attire for college and thus the demand for sweatshirt will fall which will again lead to the same effect as the previous diagram. Price and quantity of sweatshirt will fall.

d) If new knitting machines are invented then the cost of supplying sweatshirts will fall and thus the supply curve will shift rightwards i.e. more supply at every price. This means supply moves from S to S' and the equilibrium moves from A to B with lower price and higher quantity of sweatshirt