This paper shows how we can correct market failure due to imperfect co
mpetition by using taxes and subsidies. The analysis is carried out at
the general equilibrium level and the importance of objective demand
curves is stressed. The main conclusions are: first, it is possible to
tax the economy back to the Walrasian equilibrium by using linear tax
es and subsidies; second, the welfare theorem holds in an imperfectly
competitive economy with corrective taxes and subsidies; third, a comp
etitive equilibrium can also be achieved by the use of ad valorem taxe
s and specific output subsidies.