[Editor’s note: We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can view the previous problem and Cutsinger’s solution here and here. Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next two weeks, and we’ll again post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!]
Query: Suppose that cotton and wool are substitutes. As well as, suppose that the provision of cotton is upward sloping whereas the provision of wool is completely elastic. Consider: A brand new manufacturing approach that will increase the provision of cotton will scale back the amount of wool provided, however there will likely be no change within the worth of wool and, thus, no change within the demand for cotton.
Resolution: We will illustrate this resolution graphically. The determine on the left hand aspect represents the marketplace for wool, whereas the determine on the best hand aspect represents the marketplace for cotton.
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