Answer to Question #120217 in Microeconomics for Ndatwa

Question

Using supply and demand analysis, explain the effects on equilibrium price and quantity of the following events on the market for shipping 1 a decrease in freight carried by ship 2. A rise in the real wages paid to ship construction workers 4. A government subsidy for ship production

Answer 1

• A decrease in freight carried by ship results due to high transport costs.Demand is low as the consumers of transport service( freight) are less likely to use it.Transport providers would be willing to supply high quantities of services since high profits are likely to arise due to high transport costs.
• A rise in the real wages paid to ship construction workers decrease the equilibrium quantity as the cost of production raises hence leads to an increase in the equilibrium price of services
• provision of government subsidy for ship production reduce the price at which transport providers are willing to provide their services and increase the quantity of services to customers.