Metzler paradox

In economics, the Metzler paradox (named after the American economist Lloyd Metzler) is the theoretical possibility that the imposition of a tariff on imports may reduce the relative internal price of that good.^[1] It was proposed by Lloyd Metzler in 1949 upon examination of tariffs within the Heckscher–Ohlin model.^[2] The paradox has roughly the same status as immiserizing growth and a transfer that makes the recipient worse off.^[3]

The strange result could occur if the exporting country's offer curve is very inelastic. In this case, the tariff lowers the duty-free cost of the price of the import by such a great degree that the effect of the improvement of the tariff-imposing countries' terms of trade on relative prices exceeds the amount of the tariff. Such a tariff would not protect the industry competing with the imported goods.

It is deemed to be unlikely in practice.^[4][5]

See also

• Leontief paradox
• Rybczynski effect

References

1. ^ Casas, François R.; Choi, Eun K. (1985). "The Metzler Paradox and the Non-equivalence of Tariffs and Quotas: Further Results". Journal of Economic Studies 12 (5): 53–57. doi:10.1108/eb002612. 
2. ^ Metzler, Lloyd A. (1949). "Tariffs, the Terms of Trade, and the Distribution of National Income". Journal of Political Economy 57 (1): 1–29. doi:10.1086/256766. 
3. ^ Krugman and Obstfeld (2003), p. 112
4. ^ de Haan, Werner A.; Visser, Patrice (December 1979). "A note on tariffs, quotas, and the Metzler Paradox: An alternative approach". Review of World Economics 115 (4): 736–741. doi:10.1007/bf02696743. 
5. ^ Krugman and Obstfeld (2003), p. 113

Further reading

• Krugman, Paul R.; Obstfeld, Maurice (2003). "Chapter 5: The Standard Trade Model". International Economics: Theory and Policy (6th ed.). Boston: Addison-Wesley. p. 112. ISBN 0321116399.