The following graph shows the domestic market for oil in the United States, where Sp is the domestic supply curve, and DD is the domestic demand curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the world price of oil. Under free trade, the United States faced a total supply schedule of SD+w, which shows the quantity of oil that both domestic and foreign producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $240 per barrel of oil and a quantity of 9 million barrels. At this price, the United States imports 6 million barrels of oil. Suppose the U.S. government imposes a $60-per-barrel tariff on oil imports. On the following graph, use the tan line (rectangle symbol) to draw the new total supply schedule including the tariff (SD+W+T). Then use the grey point (star symbol) to indicate the new market equilibrium price and quantity as a result of the tariff. PRICE (Dollars per barrel) 420 390 360 330 300 270 240 210 180 So SD+W+T Equilibrium Under Tariff Domestic Revenue Effect Terms-of-Trade Effect 150 Sp+w 120 0 1 2 3 4 5 6 7 8 9 10 Deadweight Loss QUANTITY OF OIL (Millions of barrels) (?)

The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in Table 34.6 and Table 34.7. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell? What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell? Sketch two supply and demand diagrams, one for each country, in the situation before trade. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade. If the Land of Submarines imposes an anti- dumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country. Does your general answer change if the Land of Submarines imposes an import quota of 70?

Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.