The sub- prime loan disaster and the ensuring collapse of the US housing market have resulted in fewer mortgage loans and in significantly reduced residential construction. prices of lumber and wood building products to plummeted. plywood fell from its high of $340 per1,000 square feet to $160. small sawmills were forced shut down or curtail production, thousands of lumber workers were laid off. at the same time, however, the use of plywood in other industries expanded.
a. explain how the restriction of building caused both lower prices reduced output of plywood, and why other industries expanded their use of plywood. [hint: to explain, use a graph for each of the demand curves, one curve representing the demand for plywood in construction, the other showing the demand for plywood in other industries. you can also use a back to back demand curves]
b. during the same period there was a marked increase in the export of logs suitable for plywood manufacture to Japan. Again use two demand curves representing demand for logs by U.S. and by Japan Plywood producers, and show how the reallocation of logs came about between the 2 countries.[Hint: again use a graph for the demand for logs in US and another for the demand for logs in japan]