There is a 50 percent decrease in the price of lumber used by a firm that builds new homes. This causes
A) a decrease in the quantity of new homes supplied.
B) an increase in the supply of new homes.
C) an increase of the quantity supplied of new homes.
D) a decrease in the supply of new homes.

Question

Quizplus · Accepted Answer

A decrease in the price of lumber, a key input in the production of new homes, would reduce the production costs for the firm. Therefore, the firm would be able to offer lower prices and/or increase its profit margin for the same price. This would encourage the firm to supply more new homes, leading to an increase in the supply of new homes. Therefore, the correct answer is B.

There Is a 50 Percent Decrease in the Price of Lumber