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The cotton market since China opened their market to the world.

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Introduction

When China opened their market to the world, prices of cotton fluctuated. This was caused by various factors. Firstly, since 1999 the Chinese government has allowed the farmers to sell part of their crop at prices they wanted and that they "no longer have the certainty of guaranteed purchases by the state". Therefore numerous investors have surged into the textile manufacturing market. This would lead to an increase in the price of cotton as the demand in the textile industry would increase rapidly. Demand1is the quantity of goods or services that will be bought at any given price over a period of time. With the increase in demand, the curve would shift to the right. A shift in the demand curve2 means a movement of the whole curve to the right or left of the original caused by a change in any variable affecting demand except the price. ...read more.

Middle

First, the farmers "expand their cotton acreage" rapidly to cope with the huge increase in the demand for cotton. Therefore because of the large increase in supply, the price of cotton increased. Supply3 is the quantity of goods that sellers are prepared to sell at any given price over a period of time. With the increase in supply, the supply curve would shift to the right from S to S1, therefore the price decrease from P to P1 and quantity shoots up from Q to Q1. It is shown in diagram 2. Diagram 2: Increase in supply for cotton Price S S1 D Quantity Secondly, the price of cotton has decreased because of China's government policies. The first policy is "government has expanded its cotton import quotas" and this would cause the supply in China to increase as the government has increased the amount of cotton that is allowed enter China. ...read more.

Conclusion

From this article, we have seen two aspects of demand theory. The increase in demand is because of two main reasons which lead to the increase in price of cotton; and the fall in demand is due to the curbing of bank loans which lead to the fall in price. Therefore, the demand theory has demonstrated the two possible outcomes. The supply theory is not as good as it only shows one aspect of the theory. The decrease in supply has caused the price of cotton to increase. However, it does not show that increase in supply will cause the price of cotton to fall. Hence, this article has not shown the entire supply theory. Nevertheless, I feel that this theory have evidently helped to illustrate the rise and fall of the price of cotton. 1 Alain Anderston, Economics, third edition,2000.Unit 4,pg 23 2 Alain Anderston ,Economics, third edition,2000. Unit 4, pg 27 3 Alain Anderston ,Economics, third edition,2000.Unit 5 ,pg 34 4 Alain Anderston ,Economics, third edition,2000.Unit 40, pg 264 ...read more.

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