EconLog Price Theory: Cotton v Wool

We’re bringing back price theory with our series on Price Theory problems with Professor Bryan Cutsinger. You can view the previous problem and Cutsinger’s solution here and here.

This, our first problem for 2025, is ready for you to solve! Share your proposed solutions in the Comments. Professor Cutsinger will be present in the comments for the next two weeks, and we’ll again post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory

Question: Suppose that cotton and wool are substitutes. In addition, suppose that the supply of cotton is upward sloping while the supply of wool is perfectly elastic. Evaluate: 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, thus, no change in the demand for cotton.