When Hurricane Katrina hit the Gulf Coast of the United States in 2005 it destroyed 5,000,000 acres of timber. Given that lumber is timber that has been sawed or split into planks and boards, explain in terms of supply and/or demand how the hurricane
impacted each of the following markets (be sure to note the expected resulting impact on equilibrium price and quantity): a. Domestic lumber b. Imported lumber c. New home construction
a. The severe weather would be expected to shift the supply curve for domestic lumber to the left, but would not automatically shift the demand curve. This would result in a higher equilibrium price and a lower equilibrium quantity for domestic lumber.
b. Imported lumber is a substitute for US-grown lumber, therefore the demand curve for imported lumber would be expected to shift to the right. The supply curve for imported lumber would not automatically shift. This would result in a higher equilibrium price and a higher equilibrium quantity for imported lumber.
c. An increase in the price of timber would represent an increase in a resource cost for those who are building new homes. Higher resource costs shift the supply curve for new home construction to the left, but the demand curve would not automatically shift. This would result in a higher equilibrium price and a lower equilibrium quantity for new homes.
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