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Consumer Surplus / Producer Surplus Traditional treatment Demand Loss in Consumer Surplus Gain in Producer Surplus Tariff Revenue Net Loss Internal Price = External Price + Tariff C B A D Supply External Price E F G H ACHD ABED BCFG BFE+DHG Loss = ½ tariff LOSS = 1 1 ∆Imports / Imports tariff × ∆Imports = tariff × Imports × tariff 2 2 ∆price / price = 1 2 = tariff × Import Elasticity × Import Quantity 2 Consumer Surplus X = exportable M = importable X Pre trade Consumption dX Pre trade Utility dM M dX = the amount you would be willing to pay in terms of X to have the exchange opportunity dM = the amount you would be willing to pay in terms of M to have the exchange opportunity dM = (pX/pM) dX These are areas below/above compensated demand curves:
