Refer to the information provided in Figure 20.5 below to answer the question(s) that follow. Figure 20.5
-Refer to Figure 20.5. 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 $________.
A) 10; zero
B) 5; 20 million
C) 5; 45 million
D) 10; 120 million

Question

Refer to the information provided in Figure 20.5 below to answer the question(s) that follow.  Figure 20.5
-Refer to Figure 20.5. 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 $________.
A) 10; zero 
B) 5; 20 million 
C) 5; 45 million 
D) 10; 120 million

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 $10 tariff would equalize the domestic price with the world price plus the tariff, eliminating imports. With no imports, there would be no tariff revenue, making option A correct.

Refer to the Information Provided in Figure 20