Question

what would be an illustration of a tariff

Answer 1

Here is a simple numerical illustration showing how a specific tariff works and who wins/loses.

Setup
- Demand: Qd = 120 − 4P
- Domestic supply: Qs = 8 + 2P
- World price (Pw) = $10 per unit (imports are available at this price)
- Specific tariff t = $6 per unit

Before the tariff (price = Pw = $10)
- Domestic quantity demanded: Qd = 120 − 4(10) = 80
- Domestic quantity supplied: Qs = 8 + 2(10) = 28
- Imports = 80 − 28 = 52

After the tariff (imported price rises to Pw + t = $16; domestic price = $16)
- Qd' = 120 − 4(16) = 56
- Qs' = 8 + 2(16) = 40
- Imports' = 56 − 40 = 16

Welfare effects (areas computed from linear curves)
- Consumer surplus (CS) before = 0.5*(30 − 10)*80 = 800
(demand intercept P where Q=0 is 30)
- CS after = 0.5*(30 − 16)*56 = 392
→ Consumers lose 800 − 392 = 408

- Producer surplus (PS) before = 0.5*(10 + 4)*28 = 196
(supply intercept is P = −4)
- PS after = 0.5*(16 + 4)*40 = 400
→ Producers gain 400 − 196 = 204

- Government tariff revenue = t * imports' = 6 * 16 = 96

Net welfare change = ΔCS + ΔPS + revenue = (−408) + 204 + 96 = −108
- That is, total welfare falls by 108 (deadweight loss).
- The deadweight loss comes from: (a) inefficiently higher domestic production and (b) reduced consumption; mathematically the two small triangles sum to 108.

Interpretation (brief)
- Who wins: domestic producers (+204) and the government (+96).
- Who loses: consumers (−408). Overall society loses (−108).
- Imports and total consumption fall (from 80 to 56).
- This illustrates the tradeoff: tariffs protect domestic producers and raise revenue but cause higher prices for consumers, reduce trade, and create deadweight losses.

Notes
- This example uses a specific tariff ($/unit). An ad valorem tariff (percentage of value) behaves similarly but scales with price.
- If the importing country is large enough to affect the world price, the world price could fall and part of the tariff burden would be borne by foreign exporters (changing the numbers above).