Question

If the united States is currently importing 14 million barrels per day at a world price of $4.00 per unit, what is the effect on imports of a tax equal to $16 per unit?

If the United States is currently importing 14 million barrels per day at a world price of $4.00 per unit (the entire amount consumed), what is the effect on imports of a tax equal to $16.00 per unit? 1.) Using the line drawing tool, help determine the quantity of U.S. crude oil imports after the $16.00 per-unit tax by drawing a horizontal line at the price paid by U.S. consumers. Label this ine'Tax 2.) Using the point drawing tool, determine quantity demanded at the price paid by U.S. consumers afterthe imposition of the import tax. Label this line Pao 3.) Using the point drawing tool, determine quantity supplied at the price paid by U.S. consumers after the imposition of the import tax. Label this line 'Pos Carefuly folow the instructions above and only draw the required objects U.S. Market for Crude Oil, 19809s 36 U.S 32- 20- Imports before the tax Dus 0123 4587 81011121314151817181020 Milions of barrels per day

Please help me with 1 - 3. I need to know where exactly to coordinate the lines.

Answer 1

After a tax imposition of $16 per unit, the price of the oil becomes $20 per unit (Earlier it was $4 and the entire tax is passed on to consumers).

Thus the price line shifts upwards at $20. Accordingly the quantity of imports decrease as well.

At this price, quantity demanded and quantity supplied are different as determined by the intersection of the price line with demand and supply curves respectively and their difference is the amount of imports. This information can be represented in the following graph:

0 M. V.

From the graph given in the problem, it can be seen that after the imposition of tax,

P = 20

Quantity supplied Qs = 8

and quantity demanded Qd = 10

Thus imports = 10 - 8 = 2