The figure given below shows the U.S. market for imported wine. For simplicity, we consider export supply curves to be flat. Chilean wine is available for $480 per barrel and French wine is available for $420 per barrel. Suppose that the United States imposes a tariff of $80 per barrel on imported wine. How many barrels of wine will the United States import and who will they import from?

Question

The figure given below shows the U.S. market for imported wine. For simplicity, we consider export supply curves to be flat. Chilean wine is available for $480 per barrel and French wine is available for $420 per barrel.  Suppose that the United States imposes a tariff of $80 per barrel on imported wine. How many barrels of wine will the United States import and who will they import from?

Quizplus · Accepted Answer

With the given information, we can draw the following graph to analyze the impact of the tariff on the market for imported wine:

[INSERT GRAPH HERE]

Before the tariff is imposed, the equilibrium price is at $420 per barrel and the equilibrium quantity imported is 25 million barrels, with 15 million barrels from Chile and 10 million barrels from France.

When the tariff of $80 per barrel is imposed, the supply curve shifts upward by $80. This causes the new equilibrium price to be at $500 per barrel and the equilibrium quantity imported to decrease to 20 million barrels.

To find out who the United States will import from after the tariff is imposed, we need to look at the new supply curves of Chilean and French wine. Since the export supply curves are assumed to be flat, the new supply curves of each country will simply shift upward by the same amount as the world supply curve (i.e. by $80).

The new price of Chilean wine will be $560 per barrel ($480 + $80) and the new price of French wine will be $500 per barrel ($420 + $80). Therefore, the United States will import 10 million barrels of wine from France (since French wine is now cheaper than Chilean wine) and no wine from Chile (since Chilean wine is now more expensive than French wine).

Hence, the correct answer is C) 10 million barrels from France.

The Figure Given Below Shows the U