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Unformatted text preview: not as much as they had before trade. Example 1 Consider a person who typically buys 5 new t-shirts every September. Think about the U.S. in Autarky. Price is $20/shirt in Autarky for a total payment of $100. With trade, the price of shirts is now $10 so the total payment is only $50. This person is better off by at least $50. But this person may buy more shirts now that the price is lower. How do we value the welfare to that person of the 6 th , 7 th , 8 th , shirt? Suppose that the 6 th shirt was worth $12 to that person. They only pay $10 so the net welfare gain is $2. Height of demand curve represents maximum price the consumer is willing to pay. Height of supply curve represents minimum price the producer is willing to accept....
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This note was uploaded on 10/04/2011 for the course EC 340 taught by Professor Ballie during the Spring '10 term at Michigan State University.
- Spring '10
- International Economics