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 is likely to happen to Finnish production of steel and the price of steel sold in Finland after the €60-per-ton tariff is imposed?

Question

Quizplus · Accepted Answer

The imposition of a €60-per-ton tariff on imported steel by Finland will make imported steel more expensive, thereby increasing the domestic price of steel. This makes domestic steel production more competitive and profitable, likely leading to an increase in Finnish steel production. Additionally, the higher cost of imported steel will be passed on to consumers, resulting in a rise in the price of steel sold in Finland.

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