Example of demand and supply movement: Wool Price

The price of wool faced a decline since 1985 because of technology innovation that leads to a decrease in demand. The technology innovations are cotton and synthetic fabrics. More buyers shifted their demand in buying wool to buying cotton and synthetic fabrics, which benefited them in a better deal. The shift in the demand curve cause movement along the supply curve, and thus resulted in a lower price.

In 2016, the price of wool increased after 30 years of decline. This increase of price resulted from a harsh winter and less feed, which leads to a decrease in supply shifting the supply curve to the left. The shift in the supply curve cause movement along the demand curve, and thus resulted in a higher wool price.

Link: http://www.stuff.co.nz/business/farming/sheep/76146110/Wool-prices-on-the-riseFullSizeRender

1 Comment »

  1. edwardsg Said,

    October 23, 2016 @ 6:10 pm

    Excellent, succinct analysis of the exogenous shocks to the wool market. However, it might be worth noting that the original shift in the demand curve in 1985 was caused by the introduction of competitive substitutes, and that these substitutes have continued to be a struggle for wool producers since their introduction, even in 2016. The 2016 shift in the supply curve due to the harsh winter is a much lesser exogenous shock to the market than the initial exogenous shock in 1985.

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