The government must subsidize firms to ensure that there are no unexploited gains from trade.

Question

Quizplus · Accepted Answer

The government may choose to subsidize firms for various reasons, but the statement that the subsidy is necessary to ensure that there are no unexploited gains from trade is false. In a competitive market, firms have an incentive to fully exploit gains from trade in order to maximize profits. Additionally, subsidies may lead to inefficiencies and distortions in the market, potentially resulting in unexploited gains from trade.

The Government Must Subsidize Firms to Ensure That There Are