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Measuring the Gains from Trade

Measuring the Gains from Trade - the price they actually...

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Measuring the Gains from Trade The demand curve measures the value an individual places on each unit of the good. The height of the demand curve shows the amount she is willing to pay for that unit of the good. The consumer pays less than she would be willing to for the good. Consumers surplus is the difference between what a consumer is willing to pay and the market price of the good. Consumer surplus is the area below the demand curve above the market price. Producer surplus is the difference between the price firms would have been willing to accept and
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Unformatted text preview: the price they actually receive. Graphically, producer surplus is the area above the supply curve below the market price. The sum of consumer surplus and producer surplus is called net national welfare. When net national welfare increases, society is better off. Different Tastes as a Basis for Trade Assume identical PPC's but different tastes. There are gains from trade even in this case. Allowing more products and more countries makes the analysis more difficult but doesn't alter the basic gains from trade....
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