Firewood prices in places from northern California to Boston and suburban New Jersey have remained steady even though the supply of firewood has been diminished by environmental restrictions of cutting. The Wall Street Journal reports that sales of gas fire places are outpacing sales of wood-burning hearths and that “people are burning less and less wood.” Use supply and demand analysis to show why firewood prices are not rising while the quantity of firewood burned is declining (hint: Allow for simultaneous shifts in the demand and supply of firewood.)
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Economics QuestionsA student asked for help with:
I have attached a pdf with the graphical explanation to this lesson.
1) When the supply of wood falls (environmental restrictions on cutting) the supply curve shift to the left.
2) When the demand for wood falls (less popularity of wood burning heaths) the demand curve shifts to the left.
3) If the supply curve shifts left by the same amount that the demand curve shifts left, then the equilibrium price will be equal to its original value
4) The price remains the same but the overall equilibrium quantity of wood decreases
SEE IMAGE FOR GRAPHICAL SUPPORT