Chapter 8, Problem 12P

To determine

1. Explain how the development of a natural gas export terminal will affect the market for natural gas in the United States.
2. Assuming that the natural gas prices are $3.00 per BTU, illustrate the effect of an export terminal on the demand for natural gas in the United States.
3. Assuming that the natural gas prices in Europe are $6.00 per BTU, draw a diagram to illustrate how the development of a natural gas terminal in the United States will affect supply and demand in the natural gas market for Europe.
4. How will the exporting of natural gas from the United States to Europe affect consumers and producers in both the places? Note that most of the natural gas in Europe originates from Russia’s state owned natural gas company, Gazprom.

Concept Introduction:

Demand - Demand is the quantity of a commodity that a consumer is willing to purchase at a particular price in a given period of time.

Supply - Supply is the quantity of a commodity that producer is willing to sell at a particular price in a given period of time.

Substitution Effect - When the consumer chooses a cheaper good against a dearer one for the same use, it is called the substitution effect.