Suppose that the free-trade price of a ton of steel is €500. (Note: € is the symbol for the euro, a common currency used in 19 European countries, including Finland.) Finland, a small country, imposes a €60-per-ton specific tariff on imported steel. With the tariff, Finland produces 300,000 tons of steel and consumes 600,000 tons of steel. What will happen to Finnish welfare losses if Finnish demand for steel increases and the quota remains unchanged?

Question

Quizplus · Accepted Answer

If Finnish demand for steel increases, the domestic quantity supplied will not change but the domestic quantity demanded will increase. This will cause Finnish consumers to face a higher price for steel due to the tariff, leading to an increase in Finnish welfare losses. Therefore, the Finnish welfare losses will increase.

Suppose That the Free-Trade Price of a Ton of Steel