| Summary: | 碩士 === 淡江大學 === 產業經濟學系碩士班 === 93 === This text sets up a three-country model to analyse the effects of trade policy on profits of the firms and the social welfare in the countries. Assume that each country has only one firm. Each firm has the ability to produce two kinds of intermediate inputs. With the some fixed proportion technology, each firm produce final good and play price competition in the final good market. We found that the outcomes are related to the substitution effect among the final goods produced.
Under the perfectly free trade, outsourcing can make more profit than inhouse does no matter how big the products substitutability is while under the government’s optimal trade policy, while subsidizing or tax the intermediate input productor, depend on the difference of products substitutability. If products substitutability is big, government would offer subsidy definitely, but if the substitutability of the products is very small, the government would not subsidize them but tax instead. Another finding is that levying taxes on the final good of the the other country could suppress the import element price outsourced from that country and increase home country’s welfare. No matter the difference of products substitutability is large or small, as long as government intervenes in the trade policy, the social welfare, will be bigger than dose not.
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