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Chapter 4: Q. b (page 80)

If some shipping firms were to exit the market for ocean-borne shipping services, what would happen to the market clearing price and equilibrium quantity? Explain briefly.

Short Answer

Expert verified

Price would rise and quantity fall.

Step by step solution

01

Step1. Given information

Some shipping firms are to exit the market for ocean-borne shipping services.

02

Step2. Explanation

Since the firms are exiting the market, the supply in the market shall fall. This shall push the prices of the market upwards due to same demand but at lowered supply. As a result, the clearing price will rise and the equilibrium quantity due to the interaction of new supply curve and demand curve shall fall.

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