Consider the British corn industry, and suppose, initially, that there is free trade in corn. The situation for the British corn market and a typical British corn farmer are shown in figure 1, below. The world price of corn is P_W. S_B is the British domestic supply curve, and D_B is British demand for corn. The typical farmer produces q_f1, and earns zero economic profit, and British consumers import an amount of corn equal to Q_D1 - Q_S1.

If corn farmers convince British government to impose a tariff T on imported corn, what will happen (a) in the short run, and (b) in the long run? Recall that in the short run, no British farmers can enter or exit the corn market, while in the long run, both entry and exit are possible.

SHORT RUN ANALYSIS

In the SHORT RUN, British farmers can now charge the protected price, P_W+T, and so will increase their output (find the point where the new price, P_W+T equals the typical farmers MC), and will earn profits. (Draw in the rectangle representing the typical farmer's profits. The height of the rectangle is the average markup per unit, which is price minus average cost, and the width of the rectangle is the quantity. Markup per unit times quantity equals total profit.)

As drawn in the diagram above, what happens to the level of imports in the short run after the imposition of the tariff?