? 560 S, 520 S. D+W+T 480 440 400 Equilibrium Under Tariff 360 320 Domestic Revenue Effect 280 240 Terms-of-Trade Effect 200 Sp-W D+W 160 + 1 3 4 5 6 7 8 10 Deadweight Loss QUANTITY OF OIL (Millions of barrels) PRICE (Dollars per barrel)

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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On the following graph, use the tan line (rectangle symbol) to draw the new total schedule including the tariff (SD+SW+ST). Then use the grey point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff. The tariff’s revenue effect (the import tariff multipled by the quantity of oil imported) can be broken into 2 opponents: domestic revenue effect and terms-of-trade effect. On the previous graph, use the green rectangle (triangle symbol) to indicate the dosmetic revenue effect of the tariff. Then use the purple rectangle (diamond symbols) to indicate the terms-of-trade effect. Now consider the effect of the tariff on welfare in the United States. On the previous graph, use the black triangles (plus symbol) to indicate the deadweight loss caused by the tariff. Question: True or false: National welfare in the United States decreases as a result of a $100-per-barrel tariff on oil imports. Explain.
560
S,
520
S.
D+W+T
480
440
400
Equilibrium Under Tariff
360
320
Domestic Revenue Effect
280
240
Terms-of-Trade Effect
200
So+W
160
+
+
1
Deadweight Loss
3
4
5
6
7
8
10
QUANTITY OF OIL (Millions of barrels)
PRICE (Dollars per barrel)
Transcribed Image Text:560 S, 520 S. D+W+T 480 440 400 Equilibrium Under Tariff 360 320 Domestic Revenue Effect 280 240 Terms-of-Trade Effect 200 So+W 160 + + 1 Deadweight Loss 3 4 5 6 7 8 10 QUANTITY OF OIL (Millions of barrels) PRICE (Dollars per barrel)
The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and Dp is the domestic demand
curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the world
price of oil. Under free trade, the United States faced a total supply schedule of Sp+w, which shows the quantity of oil that both domestic and foreign
producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $280 per barrel of oil and a
quantity of 8 million barrels. At this price, the United States imports 6 million barrels of oil.
Suppose the U.S. government imposes a $100-per-barrel tariff on oil imports.
On the following graph, use the tan line (rectangle symbol) to draw the new total supply schedule including the tariff (Sp+w+T). Then use the grey
point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff.
Transcribed Image Text:The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and Dp is the domestic demand curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the world price of oil. Under free trade, the United States faced a total supply schedule of Sp+w, which shows the quantity of oil that both domestic and foreign producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $280 per barrel of oil and a quantity of 8 million barrels. At this price, the United States imports 6 million barrels of oil. Suppose the U.S. government imposes a $100-per-barrel tariff on oil imports. On the following graph, use the tan line (rectangle symbol) to draw the new total supply schedule including the tariff (Sp+w+T). Then use the grey point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff.
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