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Wize University Macroeconomics Textbook > International Trade (Exports and Imports)

Importing Country

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Imports

When the world price is below the equilibrium, the country will import the product, which is when we buy goods from other countries.

Wize Tip
When the world price is above the equilibrium, that country will export the good. When the world price is below the equilibrium, that country will import the good.

  • At the world price of $7 the domestic demand is
    90
    units and domestic supply is
    20
    units.
  • The imports are equal to the excess
    demand
  • In the diagram above, the imports =
    90 - 20 = 70
    units.
  • With trade, the consumer surplus is everything above the price but below the demand until the quantity of 90 since that is the quantity consumers are getting in total. This is the triangle A + B + D.
  • With trade, producer surplus is everything below the price but above the supply until a quantity of 20 because that's all the domestic producers are selling. This is the triangle C.
Before Trade After Trade Change
Consumer Surplus
A
A + B + D
+ B + D

Producer Surplus
B + C
C
- B
Total Surplus
A + B + C
A + B + C + D
+ D


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Imports with Tariff

A tariff is a tax on imports that is designed to help domestic businesses.




  • In the diagram above, the world price was $7 with free trade and then the government put a $2 tariff that raises the price to $9.
  • With a tariff, the quantity demanded is
    80
    units and the domestic supply is
    30
    units so the imports are
    80 - 30 = 50
    units.
  • The consumer surplus is everything above the price of $9 but below the demand until a quantity of 80 (since that is the quantity consumers are getting in total) which is the triangle A + B.
  • The producer surplus is everything below the price of $9 but above the supply until a quantity of 30 (since that is the quantity domestic producers are selling) which is the triangle C + G.
  • The government tariff revenue is the tariff multiplied by the imports (because the government doesn't tax the domestic businesses). This would be
    2 * 50 = $100
    which is the rectangle E. These areas can be summarized below:

Before Tariff (Free Trade) After Tariff Change

Consumer Surplus
A + B + C + D + E + F
A + B
- C - D - E - F
Producer Surplus
G
C + G
+ C
Government Revenue
None
E
+ E

Total Surplus
A + B + C + D + E + F + G
A + B + C + E + G
- D - F

Practice: Tariff

When a country places a tariff on goods it imports from other countries, it will increase: