Answer to Question #309548 in Microeconomics for Fahrul Iqbal

Question

Using supply and demand diagrams, show the effect of the following events on the market for sweatshirts.

a. A drought in Egypt damages the cotton crop.

b. The price of leather jackets falls.

c. All universities require students to attend morning exercise classes in appropriate attire.

d. New knitting machines are invented

Answer 1

Answers

(a) A drought damaging the cotton will lead to its reduction in supply leading to a reduced supply of sweatshirts since they are complementary goods. This will shift the supply curve to the left and lead to increased price and reduction in quantity demanded.

(b) A fall in price of leather jackets will lead to fall in demand for sweatshirts as they're substitute goods. This will shift the demand curve to the left and lead to reduction in both quantity demanded and price as shown.

(c) Sweatshirts are not an appropriate attire for exercise and this will thus lead to reduction in their demand. This will shift the demand curve to the left and lead to reduction in both quantity demanded and price.

(d) If new knitting machines are invented then the cost of supplying sweatshirts will fall and lead to increased supply. The supply curve will thus shift to the right with reduction in price and increased quantity demanded.