April 30, 2013
Lumber Prices & Housing Market
Chapter 11 explains how firms’ decisions are based on whether or not the company will benefit by making a decision; whether it is to hire new employees or upgrade to a bigger resource in order to make some profit. The market supply of resources says that resource suppliers are more willing and more able to increase quantity supplied as the resource price increases, so the market supply curve slopes upward. Resource suppliers are more willing because a higher resource price, other things constant, means more goods and services can be purchased with the earnings from each unit of the resource supplied ( (McEachern 255).
After the 2001 recession in the United States, the demand for housing started increasing. The prices of houses rose, therefore, the demand for lumber increased tremendously. Since houses were in high demand, lumber was also in high demand. The price per thousand board feet of framing lumber jumped from two hundred and eighty one dollars in October 2001 to four hundred and seventy three dollars in August 2004, a rise of sixty eight percent ( (McEachern 254). This caused the demand curve for lumber to shift rightward. But when the housing market began to slow down again in the year 2005-2007, the decline in housing demand led lumber sales to drop incredibly, causing the demand curve to shift to the left.
As the housing demand was not increasing, lumber mills had to reduce the price of lumber, decreasing the lumber mill’s profitability. Big lumber corporations were suffering from the decline in housing demand causing some to suspend their production and even closing down some of their major mills.
February 28, 2013, ABC News reported that they cannot predict the lumber business, but for more than a year, demand has been on the increase. Producers of lumber have been reluctant to hire new employees and increase their productivity because of the recession. Now corporations are anticipating the day demand exceeds supply. Mills are increasing productivity and even a sawmill that had been closed for…