Question

A hurricane blows through Texas, destroying most of this year’s cotton production in the US. Assuming there is no close alternative to produce clothing nationwide, what would happen to the supply and demand model for cotton in the US? Please provide details about Supply, Demand, Quantity, Price, and Total Revenue for cotton farmers in Texas. Include a graph.

Answer 1

Ans. As there are no close substitutes for cotton, so, demand for cotton is relatively inelastic and thus, has a very steep negative slope. When the hurricane destroys most of the cotton crop then its aggregate supply reduces shifting the supply curve leftwards from S to S’ which at given demand for cotton leads to increase in the price of cotton from P to P’ and decrease in quantity of cotton to Q’ from Q. As the demand curve of cotton is relatively inelastic, so, an increase in price leads to increase in revenue for Texas’ cotton farmers.

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