Economic Fashion

1) Why have cotton prices been rising? Illustrate your arguments with a demand and supply diagram.
 There have been floods in the main countries producing cotton, e.g. China and Pakistan, this caused the prices to rise, as well as the prices have basically risen for imports in the UK due to a weak currency. The exchange rate has fallen, this causing products that are imported to be more expensive. There is less supply and the same amount of demand, although the prices has risen as well, due to a weak currency.

2) Would you expect a rise in the price of cotton of 45% to lead to a rise in the price of cotton clothes of 45%, or of more than 45% or of less than 45%? Explain.
 I would except the prices to rise less than the exact rise of cotton, since there are more factors in the production and delivery of products to stores. There are also costs of transport (oil) as well as the labour. All these factors influence the price of cotton cloths.
3) For what other reasons are the prices of clothing rising?
 The prices of clothes have also risen due to the rise of the prices of oil, as well as the increase of VAT. In england there was a 5% rise in the VAT tax making clothes 5% more expensive than they were. This is a big factor of the increase of the price.
  4) How did the process of globalisation keep the price of clothing down?
Globalization allows to have more alternative, if the cotton crops in china are destroyed there still will be cotton from other countries. This influences the price of cotton as well as due to globalization there is more competitiveness between the different suppliers. The price of oil is still high because all suppliers have signed a contract and are in the OPEC, which controls the prices on the market.

5) Why is the ‘Fairtrade system so important’?
The fair-trade system is important to let undeveloped countries also have a fair chance of trading with more developed countries. This system makes sure that undeveloped countries manage to efficiently supply goods, this adding to globalization. The fair trade system increases the less developed countries chances to be in market with bigger countries which have developed trades.
6) “Some retailers have already increased prices but there is more to come. The products most under threat are T-shirts, underwear and socks. More complicated garments such as heavy jeans will be less affected.” Why are the prices of more complicated garments likely to rise by a smaller percentage than those of simple garments?
The simple garments the most of their production costs are the resources, whereas in the more complicated ones there is a bigger percentage of cost in the assembly. Therefore if the price of cotton increases, simple garments price of production will rise much more percent wise than the costs of production of jeans since the resources are a smaller percentage of costs.
7) What has been happening to the demand for cheap fashion clothing and why? Combine this effect with those of costs on a demand and supply diagram.
The demand for cheap fashion clothing has risen, since the clothing quality has risen as well as availability. Brands like H&M and Zara have made clothing that looks almost exactly the same as designer clothing although much cheaper.
8) What type of market structure is the market for fashion clothing? What are the implications of this for the profits of retailers?
The market for clothing has a very high elasticity since there are many alternatives to one brand, although the market itself is based purely on fashion and trend. Some fashion companies are only trendy for a season and then go out of season and never come back to the tops of the market. Although there are others e.g. H&M who keep up with the fashions, invite famous designer to design their clothing and copy other famous brands.

What do you think?
Erlach