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A headline reads "Lumber Prices Up Sharply." In a competitive market, this situation would lead to a(n) a. increase in the price of new homes and decrease in quantity. b. decrease in the price of new homes and increase in quantity. c. decrease in the price and quantity of new homes. d. increase in the price and quantity of new homes.

Answer :

Answer:

increase in the price of new homes and decrease in quantity.

Explanation:

An increase in the price of lumber which is an input in building houses would increase the cost of building houses. This would reduce the supply of houses.

A reduction in the supply in houses would shift the supply curve to the left. Equilibrium price would rise and quantity would fall.

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