Markets · Tool 05

Opening up to trade: tariffs & export taxes

A small open economy faces a fixed world price. Set the curves and the world price, then add a trade policy and watch surplus, trade volume, and deadweight loss respond.

Demand intercept a

Demand slope b

Supply intercept c

Supply slope d

World price P_W

Trade policy

Baseline — autarky (no trade)

Autarky price P*

Autarky quantity Q*

At the world price — free trade

World price P_W

Quantity demanded

Quantity supplied

Imports

With policy

Policy

Domestic price

Quantity demanded

Quantity supplied

Imports

Government revenue

Welfare

	Autarky	Free trade	Policy
Consumer surplus
Producer surplus
Govt revenue
Total surplus

Gains from trade (autarky → free trade)

Deadweight loss of policy (vs free trade)

Some quantities exceed Q = 100; the chart is clipped to the window but the figures above are exact.

Who gains, who loses

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