(a) Draw and show the supply of export goods and the demand for import goods in relation to the two areas' supply and demand curves (three islands next to each other). (b) What happens (to welfare in the two countries and consumer surplus/producer surplus) if the EU stops importing Russian gas? (c) Without Nord Stream 1/2 in operation, the capacity of the gas deliveries to Europe much lower (but not 0). Repeat task b) for this case. (d) Show what happens if the EU instead introduces a tariff on imports (assuming functioning gas pipelines and zero capacity constraints). Is Is this a better tool than stopping gas imports altogether? (e) Use the framework to discuss price caps on gas or oil from Russia. (f) Present and comment on sanctions measures that have been used against Russia, and their effect so far.

We look at the trade of gas between Russia and the EU and assumes that both areas' supply curves slope upwards and their demand curves slope downwards in the diagram with quantity on the horizontal axis and price on the vertical axis. To make the situation simple, we also initially assume that the exchange rate is constant, and it is 1 (so that we do not need to differentiate between the prices i Russia and the EU). In the autarky equilibria, prices are higher in the EU than in Russia. Unless otherwise specified, there are no trading costs, and the capacity of the pipelines is not binding (ie with free trade the prices are basically the same in the EU and Russia).

(a) Draw and show the supply of export goods and the demand for import goods in relation to the two areas' supply and demand curves (three islands next to each other).

(b) What happens (to welfare in the two countries and consumer surplus/producer surplus) if the EU stops importing Russian gas?

(c) Without Nord Stream 1/2 in operation, the capacity of the gas deliveries to Europe much lower (but not 0). Repeat task b) for this case.

(d) Show what happens if the EU instead introduces a tariff on imports (assuming functioning gas pipelines and zero capacity constraints). Is Is this a better tool than stopping gas imports altogether?

(e) Use the framework to discuss price caps on gas or oil from Russia.

(f) Present and comment on sanctions measures that have been used against Russia, and their effect so far.