## Question

Qd= 5 - 3 Pg + Po + 0.1 Y

Qs = 14 + Pg - Pk - 0.2 PL - 0.5 PLB

Where:

Pg – price of natural gas

Po – price of oil = $55

Y – income = $200

Pk – price of capital = $2

PL – price of land = $4

PLB – price of labor = $4

From the given information, what will be the equilibrium price and quantity? At equilibrium, what are the price elasticity of demand, the price elasticity of supply, and the income elasticity of demand? Show your work.

2) In Game Theory models, we addressed markets with few, large players. In that context, participants actively pay attention to the production decisions of their competitors. We defined the notion of reaction function to describe this situation. What is a reaction function? Describe the 4 steps to get to a reaction function in the case of 2 firms/countries.

3) We have discussed at length the importance of demand and supply elasticities to understand our international energy markets, and frankly all markets. One model we worked with is the dominant firm - competitive fringe model as a means for understanding the international market for crude oil. Using this model, explain how the technological changes of horizontal drilling and hydraulic fracturing have affected the elasticities of supply and demand in the global crude oil market. And using the model further, explain what you expect the changes in production volumes as a result of the technological changes to be for both OPEC (the dominant firm) and Non-OPEC (the competitive fringe)? How does this compare with what we are observing in the market currently?

4) Discuss the bilateral monopoly model and how it may relate to the Asian natural gas market. How may it be related to the S-curve pricing structure we have discussed?

5) Per the IEA latest World Energy Outlook, the share of LNG in global long-distance gas trade in 2040 will represent (source IEA 2016):

a. 26%

b. 42%

c. 53%

d. 85%

e. 10%

6) The coal form with the highest energy content is

a. Lignite

b. Anthracite

c. Bituminous

d. Subbituminous

7) According to the IEA latest World Energy Outlook, 23% of the power generation is coming from renewables today. In 2040, the share of power generation coming from renewables will be:

25%

49%

20%

37%

30%

8) Volt and Watt are respectively

a. The volt is a measure of electric potential or the force pushing the electrons and the Watt is a measure of power equal to volts times amps

b. The Watt is a measure of flow of electrons and the Volt is a measure of power equal to Watt times amps

c. The Watt is a measure of electric potential or the force pushing the electrons and the volt is a measure of power equal to Watt times amps

d. I don’t know

e. The Volt is a measure of flow of electrons and the Watt is a measure of power equal to volts times amps

9) You are shopping for natural gas and have found the following two possibilities. The percent of gases and liquid in each stream are as follows. You want the LNG with the higher energy content. Which one would you chose?

LNG 1 LNG 2

Methane (C1) 97% 80%

Ethane (C2) 0.5% 15%

Propane C3 <0.1% 4%

Butane (C4) 0.5% 1%

Pentane and heavier (C5+) 0.0% < 1%

Nitrogen (N2) 1% 0%

a. LNG1

b. LNG2

c. LNG1 and LNG2 because they have the same energy content

d. Neither b/c their energy content is negative

e. All of the above

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