Answer to Question #97599 in Microeconomics for Theophilus Bredu

Question

In a long run, how do ship owners adjust supply to satisfy a change in demand, in response to change in price or freight rate?

Answer 1

In the long run, when the demand for ship rides changes due to change in price of freight rate, suppliers have enough time to change the supply of ships, due to which the change is observed in output, with no changes in freight rates. For example, when the freight rate decreases, due to some reasons, the demand for shipping increases, in the long run, however, ship owners will not buy more ships, due to decreased freight prices. The transportation will decrease, due to the decrease in the supply of shipping services by the ship owners. The new equilibrium will be established with less output and previous equilibrium price (before its demand got changed).