6 . Effects of a tariff

Suppose the following graph shows the domestic demand (DD) and domestic supply (SS) for cheese in Algeria, which is a producer as well as an importer of cheese. The free trade world price of cheese (PwPw) is $1,000 per tonne.

Price with TariffTariff RevenueChange in PSDWL01234567891011122800260024002200200018001600140012001000800600400PRICE/COST (Dollars per tonne)QUANTITY (Millions of tonnes)DSPw

With free trade, the price of cheese in Algeria would be

per tonne. Algeria would produce

milliontonnes of cheese and import

milliontonnes.

Suppose Algeria's government imposes a 60% tariff on cheese imports. Assume the tariff does not influence the world price of cheese.

On the preceding graph, use the black line (plus symbol) to show the world supply of cheese with the tariff.

The tariff Algeria's production of cheese by

milliontonnes, its domestic consumption by

milliontonnes, and its imports by

milliontonnes.