Suppose that a new technique for harvesting lumber more efficiently was discover

Question

Suppose that a new technique for harvesting lumber more efficiently was discovered.

i). Illustrate the effect you think this would have on the market for lumber. How will the price and quantity sold of lumber move?

ii). How would this affect the purchasing decisions of competitive firms that make wooden furniture? Why?

iii). How will these changes affect each furniture firm’s output decision? Will more or less furniture get made?

iv). Illustrate the effect you think that all of this will have on the furniture market, and predict the movements on the price and quantity of furniture.

Explanation / Answer

1. Technological development in the field of harvesting lumber will lead to the rightward shift of the supply curve of lumber. The prices will decline and the quantity sold will increase.

2. For the firms making wooden furniture, lumber acts as an input or a factor of production. Reduction in the price of the factor of production will lead to purchasing of more lumber by the firms.

3. This will shift the Marginal cost curve or the supply curve of the firms downwards and thus increase the amount of output sold by the firms.

4. In the case of furniture market, the supply curve of the furniture will shift rightwards due to increase in the supply of each firm and thus total supply will increase. This will lead to decline in the price of furniture and increase in the amount of quantity sold.

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