2.1 Suppose that the world price of oil is $60 per barrel andthat the United States can buy all the oil it wants at thisprice. Suppose also that the demand and supply schedulesfor oil in the United States are as follows:Price($ Per Barrel)5560657075U.S. QuantityDemanded2624222018U.S. QuantitySupplied1416182022a. On graph paper, draw the supply and demand curves forthe United States.b. With free trade in oil, what price will Americans pay fortheir oil? What quantity will Americans buy? How muchof this will be supplied by American producers? How much will be imported? Illustrate total imports on yourgraph of the U.S. oil market.c. Suppose the United States imposes a tariff of $5 per bar-rel on imported oil. What quantity would Americansbuy? How much of this would be supplied by Americanproducers? How much would be imported? How muchtariff revenue would the government collect?d. Briefly summarize the impact of an oil tariff by explainingwho is helped and who is hurt among the followinggroups: domestic oil consumers, domestic oil producers,foreign oil producers, and the U.S. government.

Answered: Suppose that the world price of oil is…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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2.1 Suppose that the world price of oil is $60 per barrel and
that the United States can buy all the oil it wants at this
price. Suppose also that the demand and supply schedules
for oil in the United States are as follows:
Price
($ Per Barrel)
55
60
65
70
75
U.S. Quantity
Demanded
26
24
22
20
18
U.S. Quantity
Supplied
14
16
18
20
22
a. On graph paper, draw the supply and demand curves for
the United States.
b. With free trade in oil, what price will Americans pay for
their oil? What quantity will Americans buy? How much
of this will be supplied by American producers? How

much will be imported? Illustrate total imports on your
graph of the U.S. oil market.
c. Suppose the United States imposes a tariff of $5 per bar-
rel on imported oil. What quantity would Americans
buy? How much of this would be supplied by American
producers? How much would be imported? How much
tariff revenue would the government collect?
d. Briefly summarize the impact of an oil tariff by explaining
who is helped and who is hurt among the following
groups: domestic oil consumers, domestic oil producers,
foreign oil producers, and the U.S. government.

Expert Solution

Step 1

A market with free trade refers to a situation where there are no barriers to trade such as tariffs, quotas, or other restrictions on imports and exports. In a free trade market, countries can exchange goods and services with each other without facing any artificial barriers or hindrances.

On the other hand, a market with tariffs is a situation where there are taxes imposed on imported goods and services. Tariffs protect domestic producers from foreign competition and raise revenue for the government. Tariffs can lead to higher prices for consumers, decreased competition, and reduced efficiency in the allocation of resources.

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