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The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and DD 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 $240 per barrel of oil and a quantity of 18 million barrels. At this price, the United States imports 12 million barrels of oil. Suppose the U.S. government imposes a $60-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. PRICE (Dollars per barrel) 420 390 H 360- 330 300 270 240 210 180 - 150 Sp SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 120 0 2 4 6 8 10 12 14 16 18 20 Deadweight Loss QUANTITY OF OIL (Millions of barrels) The tarrif's revenue effect (the import tariff multiplied by the quantity of oil imported) can be broken into two components: • Domestic revenue effect • Terms-of-trade effect On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic 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 symbols) to indicate the deadweight loss caused by the tariff. True or False: National welfare in the United States increases as a result of a $60-per-barrel tariff on oil imports. True O False

The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and DD 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 $240 per barrel of oil and a quantity of 18 million barrels. At this price, the United States imports 12 million barrels of oil. Suppose the U.S. government imposes a $60-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. PRICE (Dollars per barrel) 420 390 H 360- 330 300 270 240 210 180 - 150 Sp SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 120 0 2 4 6 8 10 12 14 16 18 20 Deadweight Loss QUANTITY OF OIL (Millions of barrels) The tarrif's revenue effect (the import tariff multiplied by the quantity of oil imported) can be broken into two components: • Domestic revenue effect • Terms-of-trade effect On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic 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 symbols) to indicate the deadweight loss caused by the tariff. True or False: National welfare in the United States increases as a result of a $60-per-barrel tariff on oil imports. True O False

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
Problem 8PA
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Please show how the graph is affected by these changes, utilizing all of the functions provided in the key next to the graph, with an updated graph. 

The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and DD 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 $240 per barrel of oil and a quantity of 18 million barrels. At this price, the United States imports 12 million barrels of oil. Suppose the U.S. government imposes a $60-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. PRICE (Dollars per barrel) 420 390 H 360- 330 300 270 240 210 180 - 150 Sp SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 120 0 2 4 6 8 10 12 14 16 18 20 Deadweight Loss QUANTITY OF OIL (Millions of barrels) The tarrif's revenue effect (the import tariff multiplied by the quantity of oil imported) can be broken into two components: • Domestic revenue effect • Terms-of-trade effect On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic 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 symbols) to indicate the deadweight loss caused by the tariff. True or False: National welfare in the United States increases as a result of a $60-per-barrel tariff on oil imports. True O False
Transcribed Image Text:The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and DD 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 $240 per barrel of oil and a quantity of 18 million barrels. At this price, the United States imports 12 million barrels of oil. Suppose the U.S. government imposes a $60-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. PRICE (Dollars per barrel) 420 390 H 360- 330 300 270 240 210 180 - 150 Sp SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 120 0 2 4 6 8 10 12 14 16 18 20 Deadweight Loss QUANTITY OF OIL (Millions of barrels) The tarrif's revenue effect (the import tariff multiplied by the quantity of oil imported) can be broken into two components: • Domestic revenue effect • Terms-of-trade effect On the previous graph, use the green rectangle (triangle symbols) to indicate the domestic 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 symbols) to indicate the deadweight loss caused by the tariff. True or False: National welfare in the United States increases as a result of a $60-per-barrel tariff on oil imports. True O False
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