188PART THREESUPPLY AND DEMAND II: MARKETS AND WELFAREOnce the government imposes a tariff, the domestic price exceeds the worldprice by the amount of the tariff. Consumer surplus is now area A±B. Producersurplus is area C ±G. Government revenue, which is the quantity of after-tariffimports times the size of the tariff, is the area E. Thus, total surplus with the tariffis area A±B ±C ±E ±G.To determine the total welfare effects of the tariff, we add the change in con-sumer surplus (which is negative), the change in producer surplus (positive), andthe change in government revenue (positive). We find that total surplus in themarket decreases by the area D ±F. This fall in total surplus is called the dead-weight lossof the tariff.DEFCGBAPriceof Steel0Quantityof SteelDomesticsupplyDomesticdemandPricewith tariffTariffImportswithout tariffEquilibriumwithout tradePricewithout tariffWorldpriceImportswith tariff
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.