Question

Suppose there are a series of large forest fires, which affect the lumber industry while, at the same time, consumers prefer less wooden furniture. The wooden furniture market would experience:A) An increase in price and an increase in quantityB) An increase in quantity and an indeterminate change in priceC) A decrease in quantity and an indeterminate change in priceD) An increase in price and an indeterminate change in quantity

Answer 1

Answer:

The correct answer is option C.

Explanation:

Forest fires would lead to a decrease in the supply of inputs for wooden furniture. This would lead to a decline in the supply of furniture. Reduction in the consumer preference for furniture would cause demand to decline. Both the demand as well as supply curve will shift leftwards. This will cause a reduction in the quantity of output.

The change in price will depend on the extent of changes in demand and supply.