Steel Import Duty
The question
The small country of Verranth imports steel, buying at the going price on international markets, which sits below the price that would clear the Verranth market with no trade. To protect domestic mills, the government of Verranth begins collecting a charge of five dollars on every ton of steel brought in from abroad. Show the effect of this policy on the market for steel in Verranth, assuming all else is held constant. Show the effect on the International Trade graph.
Equilibrium at Quantity 64, Price ($) 49
Drag a curve, or use the arrow buttons. Want the free-play version with every control? Open this graph in the sandbox.
Steel Import Duty: the worked answer
On the International Trade graph, The tariff shifts up.
Why The tariff shifts up
Verranth is a price taker, so before the policy both domestic buyers and domestic sellers face the world price, and the gap between the quantity demanded and the quantity supplied at that price is filled by imports. The charge is a per-unit tariff on each imported ton, so the price inside Verranth becomes the world price plus the tariff, and the tariff moves up from zero. The world price is set by the rest of the world and is unchanged, and nothing has altered domestic production costs, incomes, or tastes, so both domestic curves stay exactly where they are.
What happens to the equilibrium
The price inside Verranth rises by the amount of the tariff, domestic production increases, domestic quantity demanded falls, and imports shrink. The government collects tariff revenue equal to the tariff times the remaining imports, and two deadweight loss triangles appear, one from higher-cost domestic output and one from purchases buyers give up.
The mistake students make on this one
Many students shift domestic supply to the right, reasoning that protection means home mills produce more. Home mills do produce more, but that is a movement up along an unchanged supply curve, pulled out by the higher price the policy creates. A tariff changes the price line that domestic buyers and sellers face; it does not cut any mill's costs, so the supply curve itself never moves.
On exam day
Draw a second horizontal line one tariff above the world price line, read the new domestic quantities off the two curves where they cross it, and remember that the gap between those quantities is imports and the revenue rectangle sits on top of it.
How this is graded
The checker reads every curve's position before and after your answer. You are marked correct only when The tariff shifts up and every other curve on the International Trade graph stays where it started — the same standard an AP reader applies to a drawn graph: the right shift, and nothing extra. There is no AI involved; the rubric is the geometry.
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