Question

Which of the following events would unambiguously cause a decrease in the equilibrium price of cotton shirts? a. a decrease in the price of wool shirts and a decrease in the price of raw cotton b. an increase in the price of wool shirts and an increase in the price of raw cotton c. an increase in the price of wool shirts and a decrease in the price of raw cotton d. a decrease in the price of wool shirts and an increase in the price of raw cotton

Answer 1

Answer:

a. a decrease in the price of wool shirts and a decrease in the price of raw cotton

Explanation:

A decrease in the price of wool shirts would lead to an increase in demand for wool shirts and a decrease in demand for cotton shirt. Cotton and wool shirts are substitutes goods. Price would fall and quantity would fall. A decrease in the price of raw cotton would increase production of cotton shirts and the supply of shirts would increase. This would lead to a rightward shift in the supply curve. Quantity would increase and price would fall. The combined effect of this would lead to an unambiguous decrease in price.

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