Trade Tariff

• Impact of tariff imposition

  1. Price increases

  2. Domestic demand decreases

  3. Domestic supply increases

  4. Imports decrease
• Domestic producer revenue

  Price x Quantity sold
• Domestic producer revenue before tariff

  Price PW x Quantity q1
• Domestic producer revenue after tariff

  Price PW+T x Quantity q3
• Foreign producer revenue before tariff

  Price PW x Quantity q1-q2
• Foreign producer revenue after tariff

  Price PW+T x Quantity q3-q4, but they only keep C as H has to be paid to government
• Government revenue

  Revenue from tariff (H)
• Consumer surplus


  Area beneath demand curve but above price
• Consumer surplus before tariff

  Large triangle
• Consumer surplus after tariff

  Smaller triangle
• Producer surplus


  Area above supply curve but below price
• Producer surplus before tariff

  Small triangle
• Producer surplus after tariff

  Larger triangle
• G and I represent deadweight losses - loss of world efficiency and loss of consumer surplus that are not recovered
• Government revenue from tariff (H) can be used for beneficial purposes like infrastructure, education, healthcare