If a new source of lumber is found, what is likely to happen to the price of lumber, and why?
A.
The price is likely to increase because demand will increase.
B.
The price is likely to increase because costs of production will increase.
C.
The price is likely to decrease because supply has increased.
D.
The price is likely to decrease because demand will decrease.
C. The price is likely to decrease because supply has increased.
When a new source of lumber is found, it increases the overall supply of lumber in the market. With an increase in supply relative to demand, the price of lumber is likely to decrease. As more lumber becomes available from the new source, there is more competition among suppliers, leading to lower prices.
C. The price is likely to decrease because supply has increased.
When a new source of lumber is found, it results in an increase in the supply of lumber available in the market. With an increase in supply, the balance between supply and demand shifts, causing the price of lumber to decrease. This occurs because the market now has more lumber available and can meet the demand more easily without scarcity, thereby leading to lower prices.
To determine the likely effect on the price of lumber if a new source is found, we should consider the basic principles of supply and demand.
When a new source of lumber is discovered, it means that the overall supply of lumber has increased. Based on the law of supply and demand, an increase in supply usually leads to a decrease in price. Therefore, the correct answer is C.
When the supply of a product increases, all other things being equal, the market tends to become more competitive. As a result, suppliers may lower their prices in order to attract buyers, leading to a decrease in the price of lumber.
Option A ("The price is likely to increase because demand will increase") is incorrect because the question specifically states that a new source of lumber has been found, which relates to supply, not demand. Without any specific information about a change in demand, it is reasonable to assume that it remains constant or doesn't drastically change.
Option B ("The price is likely to increase because costs of production will increase") is also incorrect because the question does not provide any information indicating an increase in production costs. Without any specific information about changes in production costs, it is not logical to assume that costs will increase.
Option D ("The price is likely to decrease because demand will decrease") is also incorrect as the discovery of a new source of lumber does not provide evidence of a decrease in demand.