Metzler paradox explained

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]

This peculiar outcome could occur if the offer curve of the exporting country is highly inelastic. In such a scenario, the tariff reduces the duty-free cost of the imported goods to such an extent that the effect of improving the terms of trade of the tariff-imposing countries on relative prices outweighs the impact of the tariff. Such a tariff would not effectively protect the industry competing with the imported goods.

However, in practice, this scenario is deemed unlikely.^{[4] [5]}

See also

• Leontief paradox
• Lerner paradox
• List of paradoxes
• Rybczynski effect

Further reading

• Book: Krugman . Paul R. . Paul Krugman . Maurice Obstfeld . Obstfeld . Maurice . International Economics: Theory and Policy . Chapter 5: The Standard Trade Model . 6th . 2003 . Addison-Wesley . Boston . 112 . 0-321-11639-9 . https://archive.org/details/internationaleco00krug/page/112 .

Notes and 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 . 10.1108/eb002612 .
2. Metzler . Lloyd A. . 1949 . Tariffs, the Terms of Trade, and the Distribution of National Income . . 57 . 1 . 1–29 . 10.1086/256766 . 153833656 .
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 . . 115 . 4 . 736–741 . 10.1007/bf02696743 . 153602151 .
5. Krugman and Obstfeld (2003), p. 113