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A-Level Economics · Tariff diagram question

Which area is the deadweight loss on the PRODUCTION side — domestic firms now making units at a higher cost than the foreign producers they displaced?

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The diagram

The answer

The triangle A B H. Over units Q₁ to Q₃ the domestic cost (up Sd) exceeds the world cost PW — triangle ABH is the allocative inefficiency. Behind the tariff wall the country produces units it has no comparative advantage in. Between Q₁ and Q₃ the cost of making them at home runs up the Sd curve, above the world price PW at which they could simply have been bought. The gap over those units — triangle ABH — is resources wasted. The US can make steel; it just isn't the best place in the world to make it.

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This is one of 6 questions on the tariff diagram — every corner lettered, every wrong answer diagnosed.

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