Explanation

The International Relations graphs illustrates how two countries trade a certain good. Both the importing and the exporting country have their own demand and supply curves for the good. With no free trade, both countries produce the good at the price no-trade (PNT) and quantity no-trade (QNT).

In this space, an explanation of the desired shift will appear.

Please choose change first.

The world price (WP) will act as either a price floor or price ceiling for the good in the foreign market.

The importing country will bring in imports that increase the total surplus in the country. This additional surplus will directly benefit the consumers of the good.

The exporting country will send out exports that increase the total surplus in the country. This additional surplus will directly benefit the producers of the good.

The importing country has a shortage of goods since the quantity demanded domestically is greater than the quantity supplied domestically as a result of the world price. The country will therefore bring in imports.

The exporting country has a surplus of goods since the quantity demanded domestically is less than the quantity supplied domestically as a result of the world price. The country will therefore send out exports.

A tariff (TAR) is a tax on imports, which will act as a price ceiling in the importing country.

The consumer surplus in the importing country will decrease because the tariff will raise the price of imported goods.

The producer surplus in the importing country will decrease as a result of the tariff.

The importing country will still bring in imports, but the size of the shortage is smaller.

There will be a deadweight loss in the importing country that is accompanied with every tax.

The size of the tax is equal to the price of the tax times the number of imports.