Question

3. The wood used to make pickets for wooden fences usually comes from soft wood trees like pine. Wooden fence posts come from harder woods since they must be more durable. An infestation of bark beetles has killed hundreds of thousands of pine trees in the US. The bark beetle only attacks pine trees. a) Draw a supply and demand diagram to show the effect of this information on the market for wooden fence pickets. Be specific about which curve you shifted, why you shifted it, and what happens to the equilibrium price and quantity of pickets. (1 point) b) Given your conclusion in (a), draw a supply and demand diagram to s how the effect of this information on the market for wooden fence posts, and chain link fence (note: This requires two new pictures). For each market, be specific about which curve you shifted, why you shifted it, and what happens to the equilibrium price and quantity for of the good in that market (1 point)

Answer 1

3. a. As the bark beetle only attacks pine trees which is used to make pickets for wooden fence, hence the supply of wooden fence pickets will decline because the infestation of bark beetles has killed hundreds of thousands of pine trees in the US. Hence the supply curve of wooden fence pickets will shift leftward from S1 to S2 and as the economy moves from point A to point B, the equilibrium price of wooden fence pickets will increase from P1 to P2 and the equilibrium quantity of wooden fence pickets will decline from Q1 to Q2.

1 price of wooden bence Pickets 1 - si end Q2, Q1 Quantity or bоwlем Раиса Pickets cs Scanned with CamScanner
b. As pickets are an input to make wooden fence posts, due to increase in the price of pickets, the cost of producing wooden fence posts increase and the supply of wooden fence post falls and the supply curve of wooden fence post will shift leftward from S1 to S2 and as the economy moves from point A to point B, the equilibrium price of wooden fence post will increase from P1 to P2 and the equilibrium quantity of wooden fence post will decline from Q1 to Q2.

p Price of wooden face post Demand Qrv QI Quantity of wooden fucce post Scanned with CamScanner
Now, chain link fence and wooden fence post are substitutes of each other and as the price of wooden fence post increases from P1 to P2, consumers will switch to its substitutes I.e the chain fence post and thus the demand for chain fence posts will increase and the demand curve for chain fence post will shift rightward from D1 to D2 and as the economy moves from point A to point B, the equilibrium price of chain link fence will increase from P1 to P2 and the equilibrium quantity of chain fence post will increase from Q1 to Q2.

a Price of chain link face supply Qi Qe > Dz Q2 Quantity of chair link fence Scanned with CamScanner