The tariff diagram illustrates that if the absolute value of the slopes of the demand and supply curves are equal, then the deadweight loss of any tariff always equals the wasted resources due to increased domestic production.

Question

Quizplus · Accepted Answer

When the absolute value of the slopes of the demand and supply curves are equal, the deadweight loss of the tariff equals the triangle formed by the difference between the domestic price and the world price, multiplied by the domestic quantity consumed minus the free trade quantity consumed. This is also equal to the additional cost incurred by domestic producers due to the tariff, which is the wasted resources due to increased domestic production. Therefore, in this case, the deadweight loss of the tariff is equal to the wasted resources due to increased domestic production.

The Tariff Diagram Illustrates That If the Absolute Value of the Slopes