Thursday, January 30, 2014

Lumber Prices are Increasing

Last year The Wall Street Journal reported that lumber prices were increasing, primarily due to an increase in the demand for lumber - in part with the housing market recovery and in part due to higher demand in international markets.  Using a supply and demand model both of these effects can be modeled as a shift in the demand curve to the right.  As a result the supply and demand model shows that the price increases and quantity increases.  Now as lumber mills increase production (due to the shift in demand to the right), lumber mills are increasing the number of employees (or unemployment decreases).  Hence we have a rather clean example of how a change in demand (here an increase) leads to an increase in the market price and market quantity.

The Wall Street Journal recently reported that while demand for lumber is still high, increases in supply are offsetting some of these high prices.

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