ECONOMICS

Economics



Economics

Using standard demand and supply curves describe and illustrate the effect on the equilibrium price and quantity in the wood products market of (1) the unexpected supply glut, (2) a slowdown in the economy or the housing market, (3) the hot summer in many parts of the country, and (4) the impact of changes in the Asian markets.

Many factors change a buyer's willingness or ability to purchase goods and services. These factors are known as determinants of demand. Consider the market for gasoline and what factors might influence a buyer's willingness or ability to purchase gasoline. To determine the impact of changes in each of the factors listed below, economists usually invoke the ceteris paribus assumption. Ceteris paribus is a Latin term usually interpreted to mean “all other factors remaining unchanged.” This assumption is made to isolate the effects of a change in the factor under consideration (Frank, 2004).

A change in supply is illustrated by a shift in the location of the entire curve. In Figure 7.2, supply is said to increase if supply changes from S 1 to S 2. An increase in supply means that sellers are willing and able to sell more at every price. For example, the movement from point E to G represents an increase in supply because at point E, sellers are willing to sell Q 3, but Q 4 at point G. This increase in willingness to sell occurs even though the price remains unchanged at P 1. A decrease in supply means the sellers are willing and able to sell less at every price and is illustrated by a shift in demand from S 2 to S 1. A change in quantity supplied is illustrated by a move along the curve. In Figure 7.2, an increase in quantity supplied is illustrated by a movement from point F to G. It is important to note that the increase in the willingness to sell from Q 3 to Q 4 occurs because price has increased from P 2 to P 1. A decrease in quantity supplied is illustrated by a movement from point

What changes in the macroeconomic environment that impact the wood products industry are discussed in the excerpt?

If both supply and demand change simultaneously, the impacts on price and quantity may not be as certain as described in the two previous examples. Remember that an increase in supply results in a decrease in equilibrium price and an increase in equilibrium quantity. An increase in demand results in an increase in equilibrium price and an increase in equilibrium quantity. What would be the impact on equilibrium price and quantity if supply and demand both increased simultaneously? In such cases, the individual effects are combined. Because the increases in both supply and demand result in increases in the equilibrium quantities, the combined result will be an increase in equilibrium quantity. However, the result on equilibrium price is uncertain. When both supply and demand increase simultaneously, the downward pressure on price, due to increasing supply, ...