Chapter 4 Notes - 1 Chapter 4 Exchange and Supply The Gains...

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1 Chapter 4 Exchange and Supply The Gains from Exchange: -Mutual Benefits: Basis of voluntary exchange -Combined benefits always the difference between marginal evaluations independent of price -Source of mutual benefits from exchange is the difference in the marginal evaluations of a good by different people -When there are no further gains form exchange, and so voluntary trading ceases the gains from trade are exhausted -Most times, individuals cannot be made worse off by allowing voluntary trade to take place because they can simply refuse to trade and keep original endowment -The possibility of trade cannot make them worse off Theorems Concerning Trade 1) Some trade is preferred to no trade -No individuals will be worse off according to their own preferences when trade is allowed -However, third parties may be negatively affected -Terms of trade: the prices art which goods are exchanged 2) More trade is not necessarily preferred by all to less trade -When there are no third parties, then more trade since it takes place on a consensual basis will always be preferred by all rather than less -Free trade helps some and hurts others -Removing restrictions on textile imports makes the product cheaper but also decreases wages for the workers Supply Curves (No production) -The supply of a good is the total amount of good some person who currently owns the good is willing to give up at those prices -Definition: How many units of a good a person is willing to give up/ supply to interested buyers at those same prices Total amount of the good currently in existence minus the quantity demanded by the present owners, positively (+) sloping -Cost of consuming a good is the maximum amount of other goods a person can get by forgoing consumption of that good - Table 4-2 Seller’s Rents -Definition: Area under the preceding supply curve up to some quantity represents
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Chapter 4 Notes - 1 Chapter 4 Exchange and Supply The Gains...

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