The Figure Given Below Shows the U

question 46

Multiple Choice

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 the United States has a tariff of $80 per barrel on imported wine. Then, the United States joins a trade bloc with Chile. What is the net effect on the U.S. well-being of joining the trade bloc?

• A)The national welfare increases by $50 million.
• B)The national welfare decreases by $550 million.
• C)The national welfare decreases by $800 million.
• D)The national welfare increases by $250 billion.

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Definitions:

Fair Value

An estimate of the market value of an asset or liability based on current market prices or valuations.

Trading Securities

Financial assets that a company holds primarily for the purpose of selling them in the short term to profit from market price changes.

Unrealized Gains

Increases in the value of assets that have not yet been sold and therefore not turned into cash.

Historical Cost

The original purchase price or cost of acquiring an asset, not adjusted for inflation or market changes.