Question

True / False? Explain. Assume the perspective of a logging company. The federal government cuts the price of logging permits in national forests by 50%. In the market for timber, we can expect the equilibrium price to rise. Describe the sequence of shifts to supply and/or demand curves and the corresponding changes in equilibrium prices and quantities that justify your answer. Graphical analysis required.

Answer 1

The answer is "False".

Step-by-step explanation:

False, because the fall in the price of logging permits will reduce the cost production and fall in the permit will increase the supply of the market. Thus, the supply curve will shift from S to S1. Consequently, the price will fall from P to P1. Here, it can be seen that the equilibrium price has decrease but the question says equilibrium price has increased. So it is false.