Article on Demand and Supply Model - Essay Example

Article on Demand and Supply Model I would like to commence this paper by highlighting the fact that cotton clothing prices have been increasing rapidly in US market, which adversely affect the consumer buying power and their clothing purchase decisions / consumption. Nevertheless, one of the major reasons behind these frequent price hikes is increase in global cotton demand by textile firms (after improvement in global economic outlook), which is not matched due to shortfalls in supply after reduction in global cotton production.

The cotton (and yarn) prices at New York cotton market have been increasing due to this demand / supply imbalance that subsequently lead to increase in prices of finished products (readymade garments, unstitched cloth, towels etc.). It is worth mentioning that there are three major cotton growing nations / producers in the world namely Pakistan, India and China. The flooding in Pakistan followed by bad weather in China and India led to depletion of cotton crops. Consequently, the cumulative global production figures came down, while the demand side recorded strong recovery since this is considered as the beginning to the end-of-recession.

The high demand then pushes prices upward in New York market, where prices of cotton futures have already touched record peaks. Indeed, the upward trend in prices started from July 2010 and over 80% increment was recorded till November 2010. The price per pound in July 2010 was only 84 cents, whereas the price in February 2011 is above 180 cents per pound – an over 114% surge within 8 months. The cotton analysts expect that this upward trend would continue for another couple of years because of low production forecasts.

Nevertheless, the actual losers in this case are the apparel (garments) producers as they have been facing various dilemmas such as whether they should reduce quality and increase prices simultaneously by relatively smaller percentages to assimilate higher costs of doing business or whether they should maintain product quality and increase prices significantly to secure their brand image and market reputation. However, it is too early to predict the consequences two aforementioned options. In conclusion, this simply means that era of cheap fashion is now over and customers have to become mentally prepared that their total spending on clothing and apparel would be much higher in upcoming future (2011 onwards) in comparison to past.

Reference Clifford, Stephanie "Cotton Clothing Price Tags to Rise" New York Times, November 2, 2010. [Online] Available at http://www.nytimes.com/2010/11/03/business/03cotton.html [Accessed - February 23, 2010]