The theorem states that—under specific economic assumptions (constant returns to scale, perfect competition, equality of the number of factors to the number of products)—a rise in the relative price of a good will lead to a rise in the real return to that factor which is used most intensively in the production of the …

What is an optimum tariff?

A tariff which maximizes a country’s welfare, trading off improvement in the terms of trade against restriction of trade quantities. For a country with monopoly power in its export markets or monopsony power in import markets, the optimum tariff is positive, but not so large as to eliminate trade entirely.

How does the imposition of tariffs affect income distribution?

If imposition of tariff leads to an improvement in terms of trade and the export price to import price ratio rises, tariff will make income distribution more equitable and consequently, the Stopler-Samuelson theorem will stand refuted.

What argument defends Leontief’s paradox?

It is sometimes argued that the American consumption pattern was so strongly biased in favour of capital-intensive goods that the prices of such commodities were relatively higher in the United States and, therefore, she would export relatively labour-intensive goods. This argument tends to support Leontief paradox.

Why does Leontief Paradox called?

disputation of Heckscher-Ohlin theory intensive, became known as the Leontief Paradox because it disputed the Heckscher-Ohlin theory. Recent efforts in international economics have attempted to refine the Heckscher-Ohlin model and test it on a wider range of empirical evidence. …they are known as the Leontief Paradox.

What is optimum tariff formula?

15.12, OA is originally the offer curve of country A and OB is perfectly elastic (e = α) offer curve of country B. The exchange takes place at P and country A imports PQ quantity of steel in exchange of the export of OQ quantity of cloth. The TOT at P for country A = (QM/QX) = (PQ/OQ) = Slope of Line OP = Tan α.

What is meant by 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. Such a tariff would not protect the industry competing with the imported goods.