if the country cannot affect world prices, region e, which represents the terms of trade gain, disappears, and it is clear that the tariff reduces welfare. it distorts the incentive of both producers and consumers by inducing them to act as if import were more expensive than they actually are. because the tariff raises the domestic price above the world price, consumers reduce their consumption to the point where the marginal unit yield them welfare equal to the tariff-inclusive domestic price. domestic producers expand production to the point where the marginal cost is equal to the tariff-inclusive point. economy produces at home additional unit of the good that it could purchase more cheaply abroad.