Managerial Economics- Term Paper

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A Real World Economic Problem
In other instances, an American administration, such as the current Bush Administration, supports the timber industry in the United States to assure political support in a critical general election (Goldfarb, 2002).
In the current environment, the softwood lumber dispute is further aggravated by supply shortages in the production of lumber in the United States stemming from environmental and habitat protection. Timber harvesting restrictions have the effect of curtailing the supply of lumber available for the market. In the case of harvesting restrictions related to the protection of spotted owl habitat, most of the timber affected is softwood lumber used extensively in the construction of houses. When the supply of lumber is restricted with no corresponding curtailment of demand, supply and demand analysis predicts that lumber prices will increase in the short run. This analysis, however, is very narrow and does not take into consideration the impacts of alternative sources of the product or substitutes for the product (Janigan, 2002).
In the case of softwood lumber used in the construction of houses, there are few viable substitutes. There is, however, for homebuilders in the United States a reliable alternative source of softwood lumber. The alternative source is Canada. Therefore, while curtailing the harvesting of softwood lumber in the Pacific Northwest did lead to a reduction in the domestically produced supply of softwood lumber in the United States, the action did not lead to an immediate reduction in the overall supply of softwood lumber because lumber suppliers in Canada made up the difference. As a consequence, prices for softwood lumber did not change at once because of the timber harvesting curtailment (Janigan, 2002).
The lumber companies in the United States, however, pressured the federal government of the United…...

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