Note: All graphs in this test can be created by Excel, Word, or by hand. If drawing by hand, make sure that your graphs (and labels) are legible. 1. Suppose the demand for housing in the Twin Cities follows the pattern below. (20 points) P Price (in Demand thousand Minneapolis St. Paul (in Twin-Cities USD) (in thousand) thousand) (in thousand) 300 400 650 250 500 700 200 600 750 150 700 800 100 800 850 50 900 900 0 I000 950 What is the table called? (2 points) At the price of $100,000, how many houses are being demanded in Minneapolis? In St. Paul? In the Twin-Cities? At the price of $250,000, how many houses are being demanded in Minneapolis? In St. Paul? In the Twin-Cities? (6 points) Name 2 potential reasons why at the same price, housing demand in St. Paul is higher than housing demand in Minneapolis. (2 points) Illustrate graphically the impact of the increase in housing price (from $100,000 to $250,000) on housing demand in Minneapolis and St. Paul. Remember to label each curve, the axes, and any changes in quanties. (6 points) Explain why an increase in price would lead to changes in housing demand that you describe in part :1. (2 points) Assume that the market has many buyers and suppliers {i.e., perfectly competitive), what is the fundamental change in the housing market that would lead to an increase in housing price? (2 points) 2. Assume that there are two ways of shipping products, by sea (sea freight) and by air (air 'eight). Assume the markets for sea freight and air freight from Asia to US west coast follow these schedules (30 points): a. At the price of $1001container, 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). b. Explain why it cannot stay at this price and what price would it move to. Illustrate this on the same graph (5 points). c. What are the equilibrium prices for air height and sea freight? What is the opportunity cost of shipping a container using air freight? (10 points) d. 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 a'ect 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.) e. To combat ination, the government decides to impose a maximum price regulation of $2,000icontainer only for air freight. (10 points) (i) Would this create a surplusfshortage in the air freight market? Illustrate this graphically. (7 points) (ii) 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) 3. Read the following article first: https://www.ft.com/content/d739cd47-e434-43c3-9b4e- 472bcef4abaf?shareType=nongift (also available on Canvas) The graph below shows the shipping prices (sea freight) during 2019-2023. You will use a supply- demand model to analyze changes in shipping price in the graph below. (30 points) Short-term shipping costs have sunk back to pre-pandemic levels Cost of taking 40ft container fro coast (short-term rates, $) - Market average 8000 6000 4000 2000 STOZ 2020 2021 2022 2023 Source Xeneta OFT a. First, make a supply-demand graph for sea freight. Correctly label demand, supply, price and quantity axes. Determine the equilibrium price and quantity of sea freight. (2 points) b. The price of sea freight has risen rapidly during the second half of 2020 up until early 2022. This is likely because people consumed goods a lot more after the COVID lockdowns. In your model, illustrate how an increase in consumptions of goods led to the rise in sea freight price during mid-2020 until early 2022. Remember to be specific about how we move from one equilibrium point to another. (10 points) c. Starting from 2022, the sea freight price has fallen steeply. One important reason is that suppliers invested in expanding shipping capacity, which means shipping firms can ship more at every price level. In your supply-demand model, explain the sharp decrease in sea freight price. (8 points)As demand for container space soared during the pandemic, many carriers ploughed money into new ships. Last month the total cargo capacity of vessels on order was equivalent to 30 per cent of the active global fleet, according to Jonathan Roach, analyst at shipping broker Braemar. This compares with 13 per cent in January 2019. Shipping companies have splurged on new vessels 2019 2020 2021 2022 2023 Shipping capacity OFF d. Did high inflation in 2022 increase or lower the sea freight price? Why? (10 points) 4. Suppose that Cambodia and China have the following Production Possibilities Frontiers for two goods: rice and microchips. (10 points) Rice A Cambodia China B Microchips a. Can Cambodia produce at point A and point B? Can China produce at point A and B? Would China produce at point A or point B? (5 points) b. Should China trade with Cambodia despite being able to produce more of both goods? (5 points) 5. The city of Minneapolis is deciding whether to raise the minimum wage. You are an economist who was commissioned to advise the city about the pros and cons of this policy. (20 points) a. Explain, with a supply-demand model, why this may have a negative impact on employment. Be clear about the number of people who want a job versus the number of jobs available. (15 points)b. Explain briey (no need for model) why we may not observe any negative effect on employment. (5 points)