Refer to the information provided in Figure 18.5 below to answer the questions that follow. Figure 18.5
-Refer to Figure 18.5. The domestic price of oil is $130 per barrel, and the world price of oil is $120 per barrel. If the domestic government imposes a tariff of $________ per barrel, it will eliminate all oil imports and achieve tariff revenues of $________.

Question

Refer to the information provided in Figure 18.5 below to answer the questions that follow.  Figure 18.5
-Refer to Figure 18.5. The domestic price of oil is $130 per barrel, and the world price of oil is $120 per barrel. If the domestic government imposes a tariff of $________ per barrel, it will eliminate all oil imports and achieve tariff revenues of $________.

Quizplus · Accepted Answer

To eliminate all oil imports, the tariff must raise the domestic price above the world price. Since the domestic price is $130 and the world price is $120, a tariff of $10 per barrel would equalize the domestic price with the world price, thus eliminating the price advantage of imports. However, if imports are eliminated, there would be no goods to apply the tariff to, resulting in zero tariff revenue.

Refer to the Information Provided in Figure 18