Refer to the information provided in Figure 33.5 below to answer the question(s) that follow. Figure 33.5
-Refer to Figure 33.5. 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 $10 per barrel, it will
A) import zero barrels.
B) import 5 million barrels.
C) export 5 million barrels.
D) export 7 million barrels.

Question

Refer to the information provided in Figure 33.5 below to answer the question(s) that follow.  Figure 33.5
-Refer to Figure 33.5. 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 $10 per barrel, it will
A) import zero barrels. 
B) import 5 million barrels. 
C) export 5 million barrels. 
D) export 7 million barrels.

Quizplus · Accepted Answer

If the domestic price of oil is $130 per barrel and the world price is $120 per barrel, then without a tariff, consumers in the domestic market would prefer to purchase oil from the world market. This means that the domestic market would import all of its oil, which is represented by the vertical intercept of the domestic demand curve with the world supply curve.

With the imposition of the tariff, the domestic price of oil would rise by the amount of the tariff to $140 per barrel ($130 + $10). At this price, the domestic quantity demanded would decrease, and the domestic quantity supplied would increase, so the domestic market would move along its supply and demand curves.

The import quantity would decrease from the initial level (represented by the vertical intercept of domestic demand and world supply) to a new level represented by the horizontal intercept of domestic demand and world supply at the higher domestic price with the tariff.

Since the new horizontal intercept represents a quantity of zero barrels, this means that the domestic market would import zero barrels of oil with the tariff in place. Therefore, the answer is A) import zero barrels.

Refer to the Information Provided in Figure 33