What is the primary purpose of subsidies provided by a government to domestic firms?

The primary purpose of subsidies provided by a government to domestic firms is to encourage exports or protect from imports. When a government gives financial support to its local businesses through subsidies, it effectively lowers their operational costs, making their products more competitive in both domestic and international markets.

By enabling domestic firms to produce goods at a lower cost, subsidies can help them export more successfully, thus increasing their market share abroad. Additionally, this financial assistance can buffer local industries from foreign competition, as it allows domestic companies to maintain their prices even when faced with cheaper imports. This protective aspect serves to support the local economy, job creation, and ensure that domestic businesses can thrive despite global competition.

The other options do not address the main function of subsidies effectively. While raising taxes on imported goods might protect domestic firms, it does not involve subsidies. Imposing trade sanctions is more about penalizing foreign firms than supporting local ones. Finally, eliminating competition from domestic markets contradicts the broader goals of promoting competition and innovation within the economy, which is typically a focus of subsidy policies.