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A-Level Economics · Tariff diagram question

Which area is the deadweight loss on the CONSUMPTION side — the mutually beneficial trades the tariff has made impossible?

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The diagram

The answer

The triangle J C E. Units Q₄ to Q₂ were worth more to consumers (on Dd) than they cost the world to supply (PW) — triangle JCE is lost gains from trade. After the tariff the market SHRINKS: fewer units are produced and traded. Between Q₄ and Q₂ there was trade that would have been mutually beneficial — willingness to pay on Dd sat above the world cost PW — and the tax has simply made it impossible. Triangle JCE is that beneficial trade destroyed, and consumer surplus is cut hard on top.

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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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