Question

Comparative Statics: Consider the market for Patriot T-Shirts. What will happen to the equilibrium price and quantity if the Patriots win the Super Bowl on Sunday and the price of cotton increases? After you perform comparative statics for each graph, determine the overall net effect on P* and Q*. Note, if you get conflicting results, e.g. Price increases and decreases, then the net result is indeterminate.

Answer 1

The demand for patriot t-shirts will increase if Patriots win the Super Bowl on Sunday. The demand curve for t-shirts would shift to the right.Price and quantity of t shirt rises.

Cotton is an input in the production of cloth. When price of cotton rises the cost of production rises, and the supply curve shifts to the left. Price of t shirt rises and quantity falls.

Overall it is definite that price would rise. Whether quantity will rise of fall will depend on the extent of shift in demand and supply curves.