Let D = demand, S = supply, P = equilibrium price, Q = equilibrium quantity.What happens in the market for redwood trees if the government restricts the amount of forest lands that can be logged?
A)D decreases, S no change, P and Q decrease
B)S decreases, D no change, P increases, Q decreases
C)D and S decrease, P and Q increase
D)D no change, S decreases, P increases, Q increases

Question

Quizplus · Accepted Answer

If the government restricts the amount of forest lands that can be logged, the supply of redwood trees will decrease since there will be fewer trees available for logging. However, demand for redwood trees is unlikely to change significantly. As a result, the equilibrium price of redwood trees will increase as buyers compete for a limited supply. Meanwhile, the equilibrium quantity of redwood trees will decrease due to the limited supply. Therefore, option B is the correct choice.

Let D = Demand, S = Supply, P = Equilibrium