We’re bringing back price theory with our series on price theory problems Professor Bryan Cutsinger. You can see Cutsinger’s previous problem and solution here and here.
This, our first problem for 2025, is ready for you to solve! Share your suggested solutions in the comments. Professor Cutsinger will be in the comments for the next two weeks, and we’ll repost his proposed solution shortly thereafter. May the charts ever be in your favor, and long live price theory
Ask: Suppose cotton and wool are substitutes. Furthermore, suppose that the supply of cotton is increasing, while the supply of wool is perfectly elastic. Evaluation: A new production technique that increases the supply of cotton will reduce the quantity of wool supplied, but there will be no change in the price of wool and therefore no change in the demand for cotton.