International Trade Using Demand and Supply: Tariffs A tariff shifts the world supply curve up by the amount of the tariff, thus raising the world price. In response to the higher price, consumers reduce their purchases from QdFree trade to QdTariff and domestic suppliers increase their production from QdFree trade to QsTariff. Since domestic consumption decreases and domestic production increases, the quantity of imports falls from QdFree trade – QsFree trade to QdTariff – QsTariff.
The government collects revenues from the tariff equal to the tariff × the quantity of imports, which is shown as the blue area.
The government collects revenues from the tariff equal to the tariff × the quantity of imports, which is shown as the blue area.