Read the case study carefully and answer following questions [20 marks]

U.S. Home Shopping Boom Buoys Shipping Lines Half a World Away

An online home shopping boom in the U.S. has sent transpacific sea freight rates to the
highest on record, helping the container shipping industry in Asia.Exports of household
appliances from South Korea to the U.S. jumped 51% in August from the same period a year
ago, climbing for a third consecutive month, Korea Customs Service data show. Shipments of
computers, notebooks and other associated gadgets soared 169%.

The increased consumer demand has seen shipping rates on the transpacific route almost
triple from this year’s low in March, when the coronavirus pandemic led to border closures
and a near halt in economic activity. With much of the world’s population housebound,
demand for electronic goods and do-it-yourself items have rocketed. Retailers and consumers
alike are also thinking about the Christmas holidays, and stocking up accordingly.

“The coronavirus outbreak has changed the way consumers spend money,” said Um Kyung-
a, an analyst at Shinyoung Securities Co. in Seoul. “Because they’re at home more than ever,
most of the money they spend is to improve their quality of life, and that’s benefiting
shipping companies.”

The spot rate to haul a 40-foot container to Los Angeles from Shanghai jumped to $3,922 on
Thursday, the most since the data became available in mid-2011, according to Drewry World
Container Index. The levy hit a low for 2020 of $1,318 on March 12.

South Korea’s biggest shipping company, HMM Co., is sailing an extra vessel that can carry
4,600 20-foot containers on Sept. 30 to Los Angeles from Busan at the request of local
clients, it said in response to questions from Bloomberg. HMM’s clients include logistics
firms such as Samsung SDS Co., LG Group’s Pantos Co. and Hyundai Glovis Co. HMM also
put on an extra vessel in August.

The improvement in business is helping earnings, too. HMM last month reported its first
quarterly operating profit in more than five years. A.P. Moller-Maersk A/S, the world’s
biggest boxship operator, also said last month that it may generate $1.5 billion more in
operating profit this year than expected. “With Black Friday and the Christmas holiday
coming up, the outlook for the container shipping industry looks good until the end of this
year, and even until January,” Um said.

[Taken from Bloomberg ( https://www.bloomberg.com/news/articles/2020-09-22/u-s-home-

shopping-boom-buoys-shipping-lines-half-a-world-away)]
Answer these following questions

1 (a) Define the term consumer Demand. [2 marks]

(b) State one reason for increase in demand for household appliances. [2 marks]

2 Draw a supply and demand diagram to show the impact of increasing consumer demand on
the price of shipping. [4 marks]

3 Explain the relationship between demand for household appliances and the demand for
shipping with help a diagram. [4 marks]

4 With help from the above text and your knowledge of economics explain how the increase
in demand for shipping is creating excess demand and determining new equilibrium price for
shipping. [8 marks]