Wool and cotton can both be used to manufacture clothing in the garment industry. Suppose that bad weather destroys cotton crops at the same time that the price of wool increases significantly. What is likely to be the impact on the market for cotton?

Question

Quizplus · Accepted Answer

The destruction of cotton crops reduces the supply of cotton, leading to an increase in its price due to scarcity. At the same time, the increase in the price of wool (a substitute) could lead to higher demand for cotton as consumers look for alternatives, making the effect on the quantity sold uncertain. However, the price of cotton is likely to increase due to the reduced supply.

Wool and Cotton Can Both Be Used to Manufacture Clothing