The figure 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 free-trade area with Chile. How much will the U.S. government tariff revenue change (as a result of joining the free trade area)?
A. Increase by $50 million
B. Decrease by $300 million
C. Decrease by $800 million
D. Increase by $600 million
Answer: C
Economics
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