4.2 Supply and Demand Analysis: An Oil Import Fee
Refer to the information provided in Figure 4.4 below to answer the questions that follow. Figure 4.4
-Refer to Figure 4.4. Assume that initially there is free trade. If the United States then imposes a $25 tax per barrel of imported oil, the tax revenue generated will equal
A) $25 million per day.
B) $50 million per day.
C) $100 million per day.
D) $125 million per day.

Question

4.2 Supply and Demand Analysis: An Oil Import Fee
Refer to the information provided in Figure 4.4 below to answer the questions that follow.  Figure 4.4
-Refer to Figure 4.4. Assume that initially there is free trade. If the United States then imposes a $25 tax per barrel of imported oil, the tax revenue generated will equal
A) $25 million per day. 
B) $50 million per day. 
C) $100 million per day. 
D) $125 million per day.

Quizplus · Accepted Answer

The tax revenue generated equals the tax per unit times the quantity of imports. From the graph, the quantity of imports with the tax is 2 million barrels per day. Therefore, the tax revenue is:

$25 per barrel x 2 million barrels per day = $50 million per day.

Therefore, the correct answer is B.

42 Supply and Demand Analysis: an Oil Import Fee