T-Shirts and Jeans May Get More Expensive as Cotton Prices Hit 10-Year High
Severe drought in China and extreme heat in the United States have hit the market for cotton. Speculators have also jumped into the market and the price has risen to a 10-year high. Makers of clothing are facing higher cotton prices and T-shirts, jeans, sweaters, shorts, and dresses have become more expensive.—cnn.com
How did the price of cotton change in 2021?
Figure 1 answers this question. It shows that the price rose from 80 cents per pound in February 2021 to 129 cents per pound in February 2022.
How do drought in China and extreme heat in the United States influence the market for cotton?
Drought in China and severe heat in the United States decrease the supply of cotton. The resulting shortage of cotton raises its price.
Figure 2 shows this influence in the market for cotton. Click here to watch a short video that explains the answer.
How do speculators influence the market for cotton?
Speculators seek to profit by buying at a price that is expected to rise and selling at a higher price. The expected future price in a market influences both the demand today and the supply in the future. When the future price is expected to rise, demand today increases as speculators buy now with the expectation of selling later at a higher price.
Click here to watch a short video that explains the answer.
How does the price of cotton influence the market for cotton clothing?
Because cotton is used to make clothing, a higher price of cotton increases the cost of producing clothing and decreases the supply of clothing. With no change in the demand for clothing, a shortage of clothing arises. The price of clothing rises to restore market equilibrium.
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