International Trade

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

1. 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.
2. 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.
3. 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

Watch a shock move this graph, step by step

• A Global Glut Pushes the World Price DownA global glut drives the world price lower, so imports widen, domestic producers supply less, and consumers gain more than producers lose.
• A Tariff Lands on ImportsA per-unit tariff lifts the price inside the country to the world price plus the tariff, so imports shrink, the government collects revenue, and two deadweight loss triangles open.
• A Trade Dispute Tariff Is RepealedA tariff left over from a trade dispute is removed, so the price inside the country drops back to the world price, imports widen, and the deadweight loss disappears.
• A Global Shortage Lifts the World PriceThe world price rises toward the domestic no-trade equilibrium, so domestic producers expand along their supply curve and the import gap narrows.
• A Demand Boom in an Import MarketDomestic demand shifts right while the world price holds still, so domestic production is unchanged and every additional unit consumed is imported.

Put it on your own page: the International Trade embed, one line of HTML for a class site or LMS.

Print it: International Trade drawing worksheet, the same shocks on blank axes, with an answer key.