How Does Increased Demand for Pillows Affect the Price of Clothes?

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SUMMARY

The discussion centers on the economic relationship between the demand for pillows and the price of clothes, specifically through the lens of supply and demand principles. An increase in pillow demand leads to higher pillow prices, prompting suppliers to increase production, which raises the demand for cotton. Consequently, the price of cotton rises, resulting in increased production costs for clothing manufacturers. This chain reaction ultimately forces clothing manufacturers to reduce supply, leading to an increase in clothing prices.

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  • Familiarity with the role of raw materials in production
  • Concept of price elasticity
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Homework Statement



Suppose that cotton is used to produce only two products, pillows and clothes. If the demand for pillows increases, what will happen to the price of clothes? Explain your answer. Assume that the laws of supply and demand hold.


Homework Equations


Laws of supply and demand


The Attempt at a Solution


Since pillow's demand increases, its price increases, which makes it profitable for pillow suppliers to raise output. The raise in output is equivalent to an increased demand for cotton, since cotton is an input for pillow production.

The increased demand for cotton is reflected in an increase in its price, which is partially borne by clothes manufacturers in the form of increased costs. These increased costs force clothing manufacturers to reduce supply, causing the price of clothes to increase.

Please tell me if I am correct.

BiP
 
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Looks logical.
 

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