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 trade bloc with Chile. What is the net effect of joining the trade bloc on U.S. well-being?
A. The national welfare increases by $250 billion.
B. The national welfare decreases by $800 million.
C. The national welfare increases by $50 million.
D. The national welfare decreases by $550 million.
Answer: D
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