In this final lesson, I challenge you to create the tariff model.

Here is what you need to know about the model. First of all, it only applies when we have imports. A tariff is a price imposed on all imports but not domestic products. Effectively, this raises the world price, but only for the imports, so surplus rises for the domestic goods.

What we want from this model is the normal equilibrium with two horizontal lines, one for the world price, and one for the world price plus the tariff. From there, we can see how domestic surplus increases, what funds are raised from the tariff, and what the deadweight loss is.