economics Economics () is the social science that studies the production, distribution, and consumption of goods and services. Economics focuses on the behaviour and interactions of economic agents and how economies work. Microeconomics analyzes ...

, the Metzler paradox (named after the American economist

Lloyd Metzler Lloyd Appleton Metzler (1913 – 26 October 1980) was an American economist best known for his contributions to international trade theory. He was born in Lost Springs, Kansas in 1913. Although most of his career was spent at the University of ...

) is the theoretical possibility that the imposition of a

tariff A tariff is a tax imposed by the government of a country or by a supranational union on imports or exports of goods. Besides being a source of revenue for the government, import duties can also be a form of regulation of foreign trade and pol ...

on imports may reduce the relative internal price of that good. It was proposed by

in 1949 upon examination of tariffs within the

Heckscher–Ohlin model The Heckscher–Ohlin model (, H–O model) is a general equilibrium mathematical model of international trade, developed by Eli Heckscher and Bertil Ohlin at the Stockholm School of Economics. It builds on David Ricardo's theory of comparative ad ...

. The paradox has roughly the same status as immiserizing growth and a transfer that makes the recipient worse off. 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 The terms of trade (TOT) is the relative price of exports in terms of imports and is defined as the ratio of export prices to import prices. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. An i ...

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.Krugman and Obstfeld (2003), p. 113

See also

References

Further reading