Q. The Metzler Paradox is a special case of the optimum tariff idea. Discuss this assertion. Could the optimum tariff tend to be a high one or a low one in the case where this paradox exists? What conditions could be needed in the international markets for a country's exports for this paradox to exist? Why do you consider empirical support for the existence of this paradox has not been forthcoming to date?
Answer: The Metzler Paradox explains an unlikely situation in which the imposition of a tariff not only improves a country's welfare but as well improves that of its domestic consumers. If this inconsistency were present then the magnitude of the optimum tariff would tend to be large since the welfare decreasing decrease in imports isn't present in this case the imports actually increase as world prices drastically drop. The Metzler Paradox could take place only if the foreign offer curves are inelastic. It isn't probable to be observed because trade elasticises tend to be relatively large. as well were it to exist its activation by a large country would tend to evoke foreign retaliation.