Consider the global market for liquefied natural gas (LNG), consisting of Japan and the rest of...

 

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Consider the global market for liquefied natural gas (LNG), consisting of Japan and the rest of the world. World suppliers of LNG operate as price takers with marginal costs given by: P = 10 + Q, And that Japan has a demand function given by: P = 1000 - 20. Suppose Japan is the world's only consumer of LNG and thus acts a monopsonist. Suppose the government imposes a price floor of $300. a. What is the market price, marginal willingness to pay, and quantity that identifies the monopsony equilibrium in the absence of the price floor? b. What is the market price, marginal willingness to pay, and quantity that identifies the monopsony equilibrium with the price floor? c. What is the change in Japan's consumer surplus due to the price floor? d. What is the change in the rest of world's producer surplus due to the price floor? e. What is the change in total welfare due to the price floor? Suppose instead that Japan is not the world's only consumer, but is only the dominant consumer. Suppose there also exists rest of world price-taking fringe' consumers with demand given by: P = 300 -1.5Q. f. How might you define an equilibrium that solves this model? What might you call this model? What are the steps you would use to solve this model? g. Given the equilibrium you have defined in f, what is the market price, marginal willingness to pay, and quantity that identifies this equilibrium in the absence of the price floor? h. Given the equilibrium you have defined in f, what is the market price, marginal willingness to pay, and quantity that identifies this equilibrium with the price floor? What is the change in Japan's consumer surplus due to the price floor? i. j. What is the change in the rest of world's producer surplus due to the price floor? k. What is the change in the rest of world's consumer surplus due to the price floor? 1. What is the change in total welfare due to the price floor? m. Compare e to l and explain. Consider the global market for liquefied natural gas (LNG), consisting of Japan and the rest of the world. World suppliers of LNG operate as price takers with marginal costs given by: P = 10 + Q, And that Japan has a demand function given by: P = 1000 - 20. Suppose Japan is the world's only consumer of LNG and thus acts a monopsonist. Suppose the government imposes a price floor of $300. a. What is the market price, marginal willingness to pay, and quantity that identifies the monopsony equilibrium in the absence of the price floor? b. What is the market price, marginal willingness to pay, and quantity that identifies the monopsony equilibrium with the price floor? c. What is the change in Japan's consumer surplus due to the price floor? d. What is the change in the rest of world's producer surplus due to the price floor? e. What is the change in total welfare due to the price floor? Suppose instead that Japan is not the world's only consumer, but is only the dominant consumer. Suppose there also exists rest of world price-taking fringe' consumers with demand given by: P = 300 -1.5Q. f. How might you define an equilibrium that solves this model? What might you call this model? What are the steps you would use to solve this model? g. Given the equilibrium you have defined in f, what is the market price, marginal willingness to pay, and quantity that identifies this equilibrium in the absence of the price floor? h. Given the equilibrium you have defined in f, what is the market price, marginal willingness to pay, and quantity that identifies this equilibrium with the price floor? What is the change in Japan's consumer surplus due to the price floor? i. j. What is the change in the rest of world's producer surplus due to the price floor? k. What is the change in the rest of world's consumer surplus due to the price floor? 1. What is the change in total welfare due to the price floor? m. Compare e to l and explain.

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Monopsony and Price Floor Analysis for LNG Market Part a Monopsony Equilibrium without Price Floor Price P To find the equilibrium we equate the marginal cost MC of the world suppliers with the margin... View the full answer