At the price of $100/container, would there be a surplus or a shortage for sea freight? How large is the surplus or shortage? Support your answer with a fully labeled graph (10 points).

Explain why it cannot stay at this price and what price would it move to. Illustrate this on the same graph (5 points).

What are the equilibrium prices for air freight and sea freight? What is the opportunity cost of shipping a container using air freight? (10 points)

Now suppose that people do not care whether their goods are being delivered by air or sea except for their prices. What would happen to demand for air freight and sea freight given the difference in shipping prices that you found in part c? Explain what must happen to the equilibrium prices of air freight and sea freight (10 points).

(Hint: if you are a buyer of shipping service, which one would you choose? How would that affect the demand of each shipping service?

In reality, people do care about whether their products are shipped by air or by sea, so this is only a hypothetical situation.)

To combat inflation, the government decides to impose a maximum price regulation of $2,000/container only for air freight. (10 points)

Would this create a surplus/shortage in the air freight market? Illustrate this graphically. (7 points)

Assume that buyers with unmet demand in the air freight will purchase the sea freight service. Explain how this would affect the price in the sea freight market. Support your answer with a graph. (3 points)

Assume that there are two ways of shipping products, by sea (sea freight) and by air (air freight). Assume the markets for sea freight and air freight from Asia to US west coast follow these schedules ( 30 points): Assume that there are two ways of shipping products, by sea (sea freight) and by air (air freight). Assume the markets for sea freight and air freight from Asia to US west coast follow these schedules ( 30 points)