International Trade
Comparative advantage, tariffs, quotas, and welfare effects.
What this graph shows
This sandbox shows a single country's market opened to world trade and then protected with a tariff. The blue domestic demand and red domestic supply curves set what the country would produce and consume on its own. The teal dashed line is the world price: when it sits below the domestic no-trade equilibrium, the country imports, because consumers buy at the lower world price while domestic firms supply less than consumers want, and imports fill the gap.
Adding a tariff raises the price domestic buyers pay to the world price plus the tariff (the purple line). Domestic firms produce more, consumers buy less, and imports shrink. The graph shades the resulting areas: consumer surplus (blue), producer surplus (red), government tariff revenue (green), and two yellow deadweight-loss triangles. Those triangles capture the efficiency lost because the tariff pushes production to higher-cost domestic firms and prices some consumers out entirely.
How to read it
Price is on the vertical axis and quantity on the horizontal. At the world price, read domestic production where that line meets supply and domestic consumption where it meets demand; the distance between them is imports, marked by the teal bracket. Raise the tariff and the effective price line moves up, narrowing that gap. The green rectangle is the tariff revenue (tariff per unit times units imported), and the two yellow triangles are the deadweight loss from over-producing and under-consuming. The stats strip tracks the domestic price, import volume, and tariff revenue as you move the sliders.
Three things to try
- Lower the World Price slider and watch the import bracket widen, since a cheaper world price lets consumers buy more while domestic firms supply less.
- Raise the Tariff slider from zero and observe the effective price line climb, imports shrink, the green government-revenue rectangle appear, and two yellow deadweight-loss triangles open up.
- Push the tariff high enough that the effective price reaches the domestic no-trade equilibrium and confirm imports fall to zero, along with tariff revenue, because a prohibitive tariff shuts trade off entirely.
Common questions
Why does a country import when the world price is below its domestic price?
At the lower world price, domestic consumers want to buy more than domestic firms are willing to supply. Foreign producers fill that gap, so the quantity between domestic supply and domestic demand at the world price is imported.
Who wins and who loses from a tariff on this graph?
Domestic producers gain surplus and the government gains tariff revenue, but consumers lose more surplus than those two groups gain. The difference is the two yellow deadweight-loss triangles, representing a net loss to the economy.
What do the two deadweight-loss triangles represent?
The production-side triangle is the waste from shifting output to higher-cost domestic firms instead of cheaper foreign ones. The consumption-side triangle is the lost value from consumers who stop buying because the tariff raised the price. Together they measure the tariff's efficiency cost.
International Trade: key terms
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