Consider a good A that can be produced domestically and by the rest of the world. In the graph below S₀S_Dand D₀D_Ddenote respectively the domestic supply and demand curves of the good A. Point E denotes equilibrium under self - sufficiency, when the country is closed to international trade., while P_Wshows the world price of A. Since the home country is a small economy it faces a perfectly elastic supply of A in the world market (i.e., it can buy as much of A as it likes at P_W. International trade politics are such that the home country imposes a tariff on imports of A, so that domestic consumers pay the price P_Tto buy good A.

Identify the effects of the tariff on the welfare of domestic producers, consumers and the government, as well as their net effect for the national economy

Price Do SD Domestic price = World Price + Tariff PT World Price Pw -.. Do So Quantity O