CONSUMER SURPLUS, PRODUCER SURPLUS, AND THE GAINS FROM TRADE The Gains from Trade Total surplus- the total net gain to consumers and producers from trading in the market, It is the sum of the producer and the consumer surplus. The Efficiency of Markets Reallocate Consumption Among Consumers Reallocating the good among consumers always means taking a good away from one person who values it more and giving it to one who values it less. This necessarily reduces total consumer surplus. Reallocate Sales Among Sellers Any person who sells a good in the market equilibrium has a lower cost than any person who keeps the good. So reallocating sales among sellers necessarily increases total cost and reduces total producer surplus. Change the Quantity Traded Preventing any sale that would have occurred in the market equilibrium necessarily reduces total surplus
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This note was uploaded on 03/16/2012 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.