Impact of Increased Demand on Lumber Prices in the US Market

Running head: MICROECONOMICS
Microeconomics
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Discussion
In the recent past, lumber prices have increased exponentially. On average, the price shot up by
up to 30% of the initial price beginning from August 2017 all the way to May 2018 (Olick,
2018). A reason for the sharp increase in prices is due to the increase in demand over the same
period of time while supply is not keeping pace with it. Lumber being a natural resource has a
limit as to how much can be harvested in a given period of time. The growth in demand has been
occasioned by the recent resurgence of the property market to what one would refer to as a
property boom (Skerritt, 2018). As a matter of fact, single dwelling construction increased by
seven percent from January 2017 to January 2018 (Olick, 2018).
Demand has also raised due to the emergence of new markets as other regions of the world
experience an economic boom leading to increased wealth. A point in case is China, which
increased its importation of the commodity and continues to see a surge in the demand for the
commodity. Lumber is the primary timber material used in the construction of homes as well as
other properties. Thereby, an increase in demand for housing leads to increased demand for
lumber. As stated above, the increase in demand has not been matched by a similar increase in
the supply of the product. Aside from the obvious reason of Lumber being a natural product with
limits to its availability, recent infestations by wood-destroying beetles in British Columbia have
destroyed whole sections of forests leading to a slump in the supply (Olick, 2018).
In addition, wildfires in the main producing areas of Canada during the summer have led to the
deforestation of whole sections of forests causing a huge supply hiccup in the United States. The
United States government raised tariffs on Canada in a recent trade spat by a whopping 20%
resulting in a substantial increase in the price of the commodity (Olick, 2018). With Canada