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 SD+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 9 million barrels. At this price, the United States imports 6 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 (SD+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) 420 390 360 330 300 270 240 210 180 So SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 150 Sp+w 120 0 1 2 3 4 5 6 7 8 9 10 Deadweight Loss QUANTITY OF OIL (Millions of barrels) (?)
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 SD+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 9 million barrels. At this price, the United States imports 6 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 (SD+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) 420 390 360 330 300 270 240 210 180 So SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 150 Sp+w 120 0 1 2 3 4 5 6 7 8 9 10 Deadweight Loss QUANTITY OF OIL (Millions of barrels) (?)
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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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 SD+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 9 million barrels. At this price, the United States imports 6 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 (SD+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
360
330
300
270
240
210
180
So
SD+W+T
Equilibrium Under Tariff
Domestic Revenue Effect
Terms-of-Trade Effect
150
Sp+w
120
0 1 2 3 4
5
6
7
8
9
10
Deadweight Loss
QUANTITY OF OIL (Millions of barrels)
(?)
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