Question

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 the finnish price of steel if finnish demand for steel increases and a 300,000-ton quota remains unchanged?

Answer 1

The price of Finnish steel will increase to €560, equal to the price of imported steel. The purpose of setting an import tariff is to protect local steel producers from foreign competitors. But if the domestic demand for steel increases, the price of local products will equal the price of imported products.