The Economic Impact of Forest Fires on Home Building Companies

What will the likely effect be on home building companies and their workers?

Suppose that the area is devastated by several forest fires, which greatly reduce the supply of lumber. What will the likely effect be on home building companies and their workers?

(A) Lumber prices won't affect how building companies operate or their costs.

(B) Building companies will try to offset higher costs by increasing production.

(C) Companies will build fewer homes and wages will drop.

(D) Lumber workers will seek construction jobs, which will increase wages.

Final answer:

An increased cost of lumber due to forest fires would lead to raised expenses for home building companies. As a result, these companies might build fewer homes and possibly cut wages to offset the higher costs.

The most likely scenario following a sharp decrease in lumber supply, as seen after forest fires in the Pacific Northwest, would be an increase in lumber prices due to decreased availability. This supply disruption could lead to higher costs for home building companies who depend on this crucial material for constructing houses.

Option (C) is the most likely outcome: companies will build fewer homes due to increased costs, and may also reduce wages or lay off workers to compensate for their increased expenses. The higher costs might cause companies to decrease production rather than increase it, refuting option (B), and the scenario is not about switching jobs for lumber workers so option (D) is irrelevant. Therefore, lumber prices will indubitably affect how building companies operate and increase their costs, contradicting option (A).