Lab
Trade and Tariffs Graph
Each graph shows one country's market for one good: domestic demand, domestic supply and a horizontal price line. Label the axes and name both curves first. Then decide what the situation changes, move the price line up or down, and drag the round point to the quantity the situation asks for. The gap between what consumers buy and what producers supply at that price is what the country imports or exports.
Challenges
- In each situation, say whether the country ends up importing or exporting the good, and read the amount off your graph as the gap between the two quantities.
- With a tariff, compare the quantity domestic producers supply before and after. Who gains from the tariff, and who pays for it?
- Why must the price with a tariff stay below the price where D and S cross? What would a tariff large enough to reach it do to imports?