According to the Australian Wool Innovation, severe drought conditions in Australia contributed to the lowest level of wool production in 50 years. This record low production has driven up prices sharply in Australian wool markets. Meanwhile, the price of raw cotton increased significantly for the first time in many years.a.       Illustrate this observation with one demand and supply graph for the market for Australian wool and another demand and supply graph for raw cotton.b.       Make sure that your graphs clearly show (1) the initial equilibrium before the decrease in the supply of Australian wool and (2) the final equilibrium.c.       Use arrows to indicate any shifts in the demand and supply curves for each market.d.       Label your graphs fully and write an explanation of your work.

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Asked Oct 30, 2019
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According to the Australian Wool Innovation, severe drought conditions in Australia contributed to the lowest level of wool production in 50 years. This record low production has driven up prices sharply in Australian wool markets. Meanwhile, the price of raw cotton increased significantly for the first time in many years.

a.       Illustrate this observation with one demand and supply graph for the market for Australian wool and another demand and supply graph for raw cotton.

b.       Make sure that your graphs clearly show (1) the initial equilibrium before the decrease in the supply of Australian wool and (2) the final equilibrium.

c.       Use arrows to indicate any shifts in the demand and supply curves for each market.

d.       Label your graphs fully and write an explanation of your work.

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Step 1

We are authorized to answer three subparts at a time, since you have not mentioned which part you are looking for, so we are answering the first three subparts, please repost your question separately for the remaining subpart.

To show the effect of changes in price in the market for wool and the market for cotton.

Step 2

It is given that the production of wool was very low. Due to this the supply of wool reduced which caused a leftward shift in the supply curve of wool which is shown by a shift from S to S' in the wool market. This caused the equilibrium price of wool to rise in the market.

On the other hand, due to a rise in price of wool there was increased demand of cotton as both are considered as substitutes of each other. This caused a rightward shift in the demand curve of cotton. This is shown by a shift from D to D' in the cotton market. This ultimately lead to a rise in price of cotton as well.

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MARKET FOR COTTON MARKET FOR WOOL Price Price S S P P Q Quantity Q Q Q Quantity

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Step 3

The initial equilibrium is shown at point 'e' in both the markets at the intersection of the initial demand (D) and initial supply (S) curve.

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