Calculating Protectionism (HL). Let’s look at the domestic market for cooking oil and tariffs. 1. Indicate the domestic equilibrium price and quantity on the graph . 2. Cooking oil may be imported. The world price is 30 ¢ per litre. Add the world supply curve to the graph .
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Calculating Protectionism (HL)
Foreign producers receive the world price of 30$, but imports are reduced from 120 to 60 units
Consumer Surplus is calculated as the area of the consumer surplus triangle, ½ (b x h)
Government revenue is calculated as the amount of tariff multiplied by the number of imports.
The two blue triangles represent the net loss of social welfare resulting from the tariff.
Foreign producers sell less, at the same price, thus reducing their revenue and, almost certainly, their profit. This will also lower employment in the foreign economies, causing damage there.