Refer to the above diagram, where S_d and D_d are the domestic supply and demand for a product and P_c is the world price of that product.S_d + Q is the product supply curve after an import quota is imposed.A tariff of P_cP_t will:

Question

Quizplus · Accepted Answer

A tariff increases the world price by the amount of the tariff (P_cP_t) and creates a wedge between the domestic price (now higher due to the tariff) and the world price. This increases the revenues of domestic producers by the areas E (quantity supplied at the new higher price), F (additional quantity supplied due to the tariff), and K (quantity previously imported that is now produced domestically). The tariff does not necessarily increase domestic consumption, as it depends on the size of the tariff and the elasticity of demand. Areas G, H, and J do not represent revenue gains for domestic producers.

Refer to the Above Diagram, Where Sd and Dd Are

Refer to the Above Diagram, Where S_d and D_d Are