Presently,the United States produces as well as imports crude oil.Suppose the government imposes a $10 per barrel excise tax on imported oil.What will happen?
A)The price of oil will rise by $10;less oil will be consumed but sales of foreign producers will rise at the expense of domestic producers.
B)The price of oil will rise;less oil will be consumed but sales of domestic producers will rise at the expense of the foreign oil producers.
C)The price of oil will decline and more U.S.-produced oil will be sold in place of the heavily taxed foreign oil.
D)The price of oil will decline and more oil will be consumed but the relative shares of the oil market between the U.S.and foreign oil producers will be unchanged.

Question

Quizplus · Accepted Answer

If an excise tax is imposed on imported oil, the price of oil will increase, resulting in less oil consumption. However, domestic oil producers will benefit from increased sales at the expense of foreign oil producers. This is because the tax will increase the price of imported oil, making domestic oil relatively cheaper, and thus encouraging consumers to buy more domestic oil. Therefore, option B is the correct choice.

Presently,the United States Produces as Well as Imports Crude Oil