In figure 2 the world price for hockey sticks is OP₁. The government now imposes a tariff equal to P₁P₂ causing the price of hockey sticks to rise to OP₂.

At the higher price(OP₂) domestic producers increase the amount they supply to the market from OQ₁ to OQ₂. Increasing production also stimulates domestic employment. This is referred to as the A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect as resources are moved from more efficient areas of the economy into the industries protected by tariffs.

The A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect is the reduction in consumer demand from OQ₄ to OQ₃ as prices increase from OP₁ to OP₂.

Tariffs can cause inflationary pressure in the economy as consumers receive fewer goods and pay higher prices. Secondly, the protected goods may be used as inputs for another industries increasing their production costs.

The impact of the protection and consumption effects creates the A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect causing imports to contract from Q₁Q₄ to Q₂Q₃. Remember the importers still only receive a price of OP₁ and A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect earnings for exporting countries have decreased from Q₁EFQ to Q₂CDQ₃. This could create problems for our exporting industries as these countries experience reduced revenue that was used to buy imports.

In response to the tariff on imports other countries may impose tariffs on goods that are exported to them. A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect could be experienced resulting in job losses in exporting industries.

The amount of revenue raised by the government is equal to the area ABDC this is referred to as the A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect or redistribution effect. The payment of the tariff by consumers on the imported goods redistributes income from the households to the government. There has also been a A retaliation effect consumption effect foreign exchange protection effect redistribution of income revenue effect trade effect from the importers to the domestic producers as they now receive a greater market share.