Question

When Hurricane Katrina hit the Gulf Coast of the United States in 2005 it destroyed 5,000,000 acres of timber. Given that lumber is timber that has been sawed or split into planks and boards, explain in terms of supply and/or demand how the hurricane impacted each of the following markets (be sure to note the expected resulting impact on equilibrium price and quantity):

A. Domestic lumber
B. Imported lumber
C. New home construction

Answer 1

A. Domestic lumber

If 5,000,000 acres of timber are destroyed, the domestic lumber market will supply less lumber because the main raw material to produce lumber, timber, is now more scarce, and more expensive.

B. Imported lumber

Even if the domestic supply of lumber has fallen, the demand for lumber has not necessarily fallen too. Domestic consumers will turn to imported lumber to satisfy their demand, making the imported lumber market grow.

C. New home construction

New wooden houses need lumber to be built. The market for new home construction will decrease if the imported lumber does not fully meet the demand that is left unmet by the reduction in domestic production. Besides, the higher costs of lumber will make new home construction more expensive, also contributing to a lesser supply.