TeachAI IBEconomics · The global economy
Drawing a tariff diagram that earns its marks
The tariff diagram appears again and again in trade questions, and examiners mark the labels as carefully as the explanation. Draw it the same way every time and it becomes a set of easy marks.
Start with free trade
- Label the axes: price (P) on the vertical axis and quantity (Q) on the horizontal axis.
- Draw domestic demand (D) and domestic supply (S).
- Draw the world price (Pw) as a horizontal line below the domestic equilibrium. In the small-country model the country can buy any quantity at Pw, so world supply is perfectly elastic.
- Mark domestic production (Q1) where Pw meets S, and domestic consumption (Q2) where Pw meets D. Imports are the gap between them: Q2 − Q1.
Add the tariff
A tariff is a tax on imports, so the price of imports rises to Pw + t. Draw a second horizontal line above Pw and label it clearly. At the new price, domestic production rises to Q3 and consumption falls to Q4. Imports shrink to Q4 − Q3.
Read the areas
| Area on the diagram | What it shows |
|---|---|
| Rectangle between Pw and Pw + t, from Q3 to Q4 | Government tariff revenue: the tariff per unit × the imports that remain |
| Triangle between Q1 and Q3, under Pw + t and above S | Welfare loss from inefficient domestic production |
| Triangle between Q4 and Q2, under D and above Pw | Welfare loss from consumption that no longer happens |
Shade and label each area you mention in your writing, and refer to it by its label. An unexplained shaded area earns little.
Who gains and who loses
- Domestic producers gain: they sell more at a higher price.
- Domestic consumers lose: they pay more and buy less.
- The government gains tariff revenue.
- Foreign producers lose sales to this market.
- The economy as a whole loses the two welfare-loss triangles.
Check yourself
The world price is $4, the tariff is $1 per unit, and after the tariff the country imports 20 units. How much tariff revenue does the government collect?
Check the explanation
$20. Revenue is the tariff per unit multiplied by the quantity still imported: $1 × 20 = $20. On the diagram, it is the rectangle between $4 and $5, across the width of the remaining imports.
Mistakes that cost marks
- Drawing world supply as an upward-sloping curve in the small-country model.
- Labelling only one price line, so the examiner cannot see Pw and Pw + t.
- Measuring imports from the origin instead of as the gap between domestic production and consumption.
- Writing about the diagram without pointing to its labels.
Check your own course
Assessment details and command-term definitions are set by your subject guide and can change between guide editions. Check the guide for your examination session and follow your teacher’s advice. The methods and examples above are written by TeachAI IB.
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