Summary+Box+Cotton+falls+on+demand+worries+-+Caroline

Title of Article: Summary Box: Cotton falls on demand worries Source:[|http://news.yahoo.com/s/ap/20110512/ap_on_bi_ge/us_commodities_review_summary_box;_ylt=ApiogZkCVLWobc1Ac7g9g4rv5rEF;_ylu=X3oDMTM4NzlmazkwBGFzc2V0A2FwLzIwMTEwNTEyL3VzX2NvbW1vZGl0aWVzX3Jldmlld19zdW1tYXJ5X2JveARwb3MDMzcEc2VjA3luX3BhZ2luYXRlX3N1bW1hcnlfbGlzdARzbGsDc3VtbWFyeWJveGNv] Date: May 16, 2011 Explanation: China is the world’s largest cotton importer, and its government is going to cut down prices by 10% because of the higher prices, which is causing inflation. This is not good for China because it is affecting the consumers. Because of the increase in inflation, people have to spend more of their money to buy the same things that they used to be able to buy for less. So, cotton prices fell 4 percent. Since the government is trying to curb inflation and make mills use more man-made textiles, demand will decline. The demand is supposed to slowdown because the growth of demand for cotton was not sustainable for China. Since the increase in demand was not sustainable, the country canceled orders for more than 100,000 bales last month. That’s how desperate China is to decrease inflation. Zomg. D:

Figure 1: Supply decreases in the cotton market to decrease the demand of people, so gov’t can adjust inflation. Price increases, and quantity supplied decreases.

Figure 2: Demand decreases. Price decreases and Quantity decreases.

Vocab List:

Demand: the desire of consumers for a particular service or commodity Supply: the amount of a good or service offered for sale Quantity Demanded: the amount of a product people are willing to buy at a certain price Quantity Supplied: amount of a product producers are wiling to supply at a certain price. Law of Demand: states that as price increases, quantity demanded decreases. Law of Supply: states that as price increases, quantity supplied increases Inflation: a general increase in prices and fall in the purchasing value of money.

Evaluation: I do agree with the Chinese government’s action of cutting down prices and making demands decrease in order to adjust for inflation. The government will make the cotton market to supply less cotton in the market but keep on producing cotton at a constant rate in order to decrease quantity demanded. The price of cotton will therefore increase. As demand goes down, the price will decrease, setting the demand and supply curve of the cotton market into equilibrium. Thus, the Chinese government will be able to satisfy from their goal, which is curbing inflation. The only part that I am worried of with the Chinese government’s latest move to slow its economy is that it might curb demand for an unlimited time..