Domestic price of natural gas

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The U.S. domestic price of natural gas is below the world price because exports of natural gas are currently not permitted. Assume that natural gas production is a perfectly competitive increasing cost industry.

a. Depict the current situation using the usual firm-market diagram.

b. Suppose the U.S. removes its natural gas export prohibition. Show both short-run and long-run adjustments that are likely to take place in the U.S. natural gas industry as a result of removing the export restriction.

c. Explain the effects of the removal of this export restriction on the welfare of U.S. consumers, natural gas firms and resource owners in the natural gas industry.

Reference no: EM131377282

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