Econ 655Fall 1996
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چکیده
Why can subsidies lead to lower welfare? Intuitively, autarky is one extreme or corner solution and we have seen that some trade must be beneficial. This does not imply that free trade is optimal (it is beneficial); but subsidies lead to larger volumes of trade than free trade and thus may lead to declines in welfare. In other words, the fact that welfare is increasing in trade flows in some domain does not imply it is globally increasing in these flows (as caused by changes in trade policies).
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