The figure below shows the demand (D) and supply (S) curves of a good produced domestically in an economy as well as traded in the international market.
Figure 20.1
In the figure,
P1: Price of the good in the international market.
P2: Price of the good in the domestic market after the imposition of tariff by the government.
P3: No-trade price of the good in the domestic market.
-Refer to Figure 20.1. If the government imposes a tariff such that the price of the good in the domestic market is P2 while the international price is P1, the dollar value of the tariff is equal to:
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