Predict effect of higher wood prices on equilibrium price


Suppose that, as the article says, softwood lumber accounts for about 20 percent of the cost of materials in a new house. Shift the supply curve to the left by 12 percent. Assume that the initial price of new housing is $100,000, that the price of elasticity of demand is 1.0, and that the price of elasticity of supply is 3.0. Predict the effect of higher wood prices on the equilibrium price of new housing. Illustrate your answer with a graph that shows the initial point (a) and the new equilibrium (b).

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Microeconomics: Predict effect of higher wood prices on equilibrium price
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