A tariff raises the domestic price and reduces imports

A tariff changes domestic production and consumption in opposite directions, so imports shrink from both sides.

A tariff is a tax on imports. In the AP Microeconomics small-country model, a per-unit tariff raises the domestic price from the world price, P_W, to P_W + t. Domestic firms move along supply and produce more. Domestic buyers move along demand and consume less. Because production rises while consumption falls, the gap filled by imports becomes smaller.

Recompute all three quantities

Before the tariff, imports equal Q_D1 − Q_S1. After the tariff, imports equal Q_D2 − Q_S2. Tariff revenue uses only the imported units that remain:

Tariff revenue = t × (Q_D2 − Q_S2)

Do not multiply the tariff by domestic quantity demanded or domestic quantity supplied alone. Domestically produced units do not pay an import tariff.

Separate transfers from deadweight loss

Consumers lose surplus because they pay a higher price and buy fewer units. Domestic producers gain surplus because they receive the higher price and expand. The government receives tariff revenue. These are not all social losses: some consumer surplus is transferred to producers and the government.

Two triangles remain as deadweight loss. The production-distortion triangle represents units shifted from lower-cost foreign production to higher-cost domestic production. The consumption-distortion triangle represents purchases that disappear even though buyers valued those units more than their world resource cost.

A tariff causes movements, not curve shifts

In the standard graph, the tariff changes the horizontal price line faced by the domestic market. It does not shift domestic demand or domestic supply. Production rises through a movement along supply; consumption falls through a movement along demand. Technology, preferences, input prices, or population could shift a curve, but the tariff by itself creates a price wedge.

An import quota can also restrict imports and raise the domestic price. The distributional difference is who receives the scarcity value. A tariff sends revenue to the government. A quota creates quota rents for whoever owns the rights to import, and the question must tell you enough before you assign those rents to domestic or foreign recipients.

Build the graph in a fixed order: domestic demand and supply, no-trade equilibrium, world price, free-trade quantities, tariff-inclusive price, new quantities, post-tariff imports, revenue, and the two deadweight-loss triangles.

Tariffs and trade policy are part of Unit 2 in the AP Microeconomics course framework.