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Economics Commentary on "Cotton Advances to a Record for Sixth Day on Supply Concerns"

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Introduction

Economics Commentary: 1 Commentator: Victoria Miller Syllabus Section: Microeconomics Date Due: November 10, 2010 Title of Extract: Cotton Advances to a Record for Sixth Day on Supply Concerns Author of Extract: Luzi Ann Javier Source: The Washington Post Date Published: November 8, 2010 Word Count: 746 words Recently, the prices for cotton futures?that sale of cotton, at a certain price, before it is available?has gone up a record of 2%, from $1.438 per pound to $1.4919 per pound. This rise in price is due to an expected change in the estimate of how much cotton the United States will produce. It is expected that the United States will announce a decrease in the supply, the amount of a good or service that is produced at a given price, of cotton in the upcoming days. The United States is the largest supplier of cotton in the world, having supplied 2.95 billion bales?one bale being equivalent to about 480 pounds?of cotton last year. ...read more.

Middle

Even though there is a shortage, the buyers of the futures are still going to get the amount they paid for at the same price?assuming that changing prices in futures are not affecting previously purchased futures. This is causing there to be a lot less supply, at way higher prices Supply and Demand Curve of Cotton 1 This graph shows the state of the cotton market, after all cotton future supplies have been distributed. Due to the raise in price, the equilibrium point shifted to the left on the demand curve. Since there was already a shortage of supply, the supply curve shifted to the left as well. These shifts cause there to be a dead weight loss, the amount of demanders lost normally due to a change in price, in the demand for cotton, for cotton suppliers. Since the United States is still the largest exporter, even though there is a global shortage, many countries?including China?still have high and growing demands for cotton. ...read more.

Conclusion

Even as the supply goes down and the price goes up, consumers still want cotton. However, this could cause major problems on a global scale because the supply of cotton may not be able to satisfy the demand for cotton. If this happens, many industries will have to search for different substitutes?a close alternative for a particular good?for cotton. The good thing is that there are many substitutes for cotton on the world market, making for a good situation. The supply of cotton projected for the upcoming year is the lowest since 1996. But this shortage may prove to be good for our economy since we are the largest supplier of cotton in the world. This shortage has the potential to not only improve the cotton market but also the market for many other goods. Javier, Luzi Ann. "Cotton Advances to a Record for Sixth Day on Supply Concerns." Washingtonpost.com. The Washington Post, 8 Nov. 2010. Web. 10 Nov. 2010. <http://washpost.bloomberg.com/Story?docId=1376-LBLJ3F6K50XX01-7JFV0K16U102E1MA7CU6L6UFOP>. ...read more.

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