National Gains from a Tariff that Affects Foreigners' Selling Price
(Figure 7.5) Graph A: A tiny tariff

When a nation has a large enough share of the world market for a good, it can affect the world price by imposing a tariff. A large country can exploit their national monopsony power and make foreign suppliers pay a portion of any tariff. In the graph on the left above, the burden of the $3 tariff on bicycles is split evenly between consumers and foreign producers. The portion of the tariff paid by foreign producers is a national gain. National losses still occur. If, as in the graph on the left, national gains exceed national losses, national welfare has increased as a result of the imposition of the tariff. Click on the highlighted text in this paragraph in order to show the areas in the graph above. Click continue when you are ready to move on to the next page.