|1. In the small-country case, we were so small that
whether we bought a lot or a little from foreign suppliers, the price never
changed. But in the large-country case, if we buy more as a nation
the price will rise, and if we buy less the price will fall.
2. After we impose a tariff, there is no way that the same quantity can be sold that was sold before the tariff was applied. Why? Because any consumers who buy coffee after the tariff is applied are paying both the tariff and the foreign coffee maker. This must raise prices and lower the amount sold.
3. But as less is sold, we move down the supply curve -- the less efficient foreign suppliers are forced out of business.
4. If you review our material on the demand and supply curves and surplus, and think about the quantity of coffee sold, starting from zero and going up, you will see that with no tariff, the last pound of coffee sold represents zero consumer surplus for the buyer of that last pound, and zero producer surplus for the producer of that last pound. So in this example, the last consumer to come into the market would consider coffee worth no more than $1.40 per pound, and the last producer to squeeze into the market would have costs of exactly $1.40 per pound. The tariff puts a further wedge in between the producer and conusumer. With the tariff, the last consumer who buys coffee must now pay both the tariff and the costs of the last producer to squeeze into the market.