Supply and demand

curves in DOMESTIC
MARKET

Blue line - Equilibrium price and demand in domestic market with NO free trade

Calculate the following (with free trade) (Purple Line)

World price (WP): $10 (Lowest price for import competing)

Quantity supplied at WP: 100 (Following WP to see quantity supplied domestically)

Quantity demanded at WP: 300 (Following WP to see quantity demanded domestically at cheaper
cost)

Quantity of imports before tari : 200 (300-100: di erence between domestic supply and demand
to meet customer demand, is imported)

Domestic supplier revenue before the tari : 10 x 100 = 1000 (Revenue = price x quantity)

Calculate the following (after the tari ) (Green Line)

Size of tari : $5 (Above world price, below equilibrium: market without free trade)

Price after tari : $15

Quantity supplied after the tari : 150 (Following WP+T to see quantity supplied domestically)

Quantity demanded after the tari : 250 (Following WP+T to see quantity demanded domestically)

Quantity of imports after tari : 100 (250 - 150: di erence between domestic supply and
demanded at new price)

Price received by domestic rms after the tari : $15 (Receive new price with tari )

Price received by foreign producers: $10 (Still receive WP, tari is kept by govt.)

Domestic supplier revenue after the tari : 15 x 150 = 2250

Impact of the tari :

Loss in consumer choice: 300 - 250 = 50 (Contraction of demand from purple line to green line
due to price increase)

Gain to domestic producer revenue: 2250 - 1000 = 1250 (revenue before tari at world price -
revenue after tari and increase in price)

Government revenue: 5 x 100 = 500 (size of tari x number of imports AFTER tari )

Decrease in imports: 200 - 100 = 100 (di erence of imports at WP (purple line) and imports at
WP+T (green line)

Loss of revenue to foreign producers: 100 x 10 = 1000 (decrease in imports x world price)
ff
ff
ff
ff
fi
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
ff
 Supply and demand
curves in DOMESTIC
MARKET

Calculate the following (with free trade) (Purple Line)

World price (WP): $5

Quantity supplied at WP: 1000

Quantity demanded at WP: 4000

Quantity of imports before tari : 3000 (4000-1000)

Domestic supplier revenue before the tari : 5 x 1000 = 5000 (Revenue = price x quantity)

Calculate the following (after the tari ) (Green Line)

Size of tari : $3

Price after tari : $8

Quantity supplied after the tari : 2000

Quantity demanded after the tari : 3000

Quantity of imports after tari : 3000 - 2000 = 1000

Price received by domestic rms after the tari : $8

Price received by foreign producers: $5

Domestic supplier revenue after the tari : 8 x 2000 = 16 000

Impact of the tari :

Loss in consumer choice: 4000 - 3000 = 1000

Gain to domestic producer revenue: 16 000 - 5000 = 11 000

Government revenue: 3 x 1000 = 3000

Decrease in imports: 3000 - 1000 = 2000

Loss of revenue to foreign producers: (5 x 3000) - (5 x 1000) = 10 000

ff
ff
ff
fi
ff
ff
ff
ff
ff
ff
ff
ff