A tariff is a tax on imported goods. It raises their price at home.
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The points to remember
- Define it like this: "A tariff is a tax on imported goods."
- On the diagram: world supply shifts up by the tariff; imports fall.
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The tariff helps some groups and hurts others. In 2018 the United States put a 25% tariff on imported steel.
Who gains, who loses
Consumers lose
They pay €5, not €3, and buy 50, not 70: consumer surplus falls.
Home producers gain
They sell 30, not 10, at a higher price: revenue and producer surplus rise.
The government gains
Tariff revenue: €2 × 20 = €40 thousand.
Foreign producers lose
They sell 20, not 60, into this market: export revenue falls.
Society loses
Two welfare-loss triangles: inefficient production and lost consumption.
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Quick reminder
- Curves: Dd and Sd (domestic demand and supply), the flat Pw and Pw + tariff lines
- Marks: Pw, Q1 and Q4 at the world price; Q2 and Q3 with the tariff; shade the area the question names
- Dots with dashed lines to the axes, an arrow for the shift
- No numbers, no title
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When a tariff is cut, the line moves down, and buyers gain.
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Some questions ask about the foreign firms that sell to this market. They still receive only Pw.
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Paper 2 asked this in November 2023, for 4 marks. Tariff diagrams come up in almost every Paper 2.
The government has placed a tariff on imported rice.
Using an international trade diagram, explain the likely effect of the tariff on domestic producer surplus.
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See the answer broken into clear points, with guidance on how each point earns marks.
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How the 4 marks are given
| Marks | What your answer needs |
|---|---|
| 3–4 | A correct diagram and a correct explanation |
| 1–2 | A correct diagram or a correct explanation, not both |
| 3 at most | A diagram with a wrong or missing label |