Figure 8-2 shows the free-trade equilibrium

under perfect competition and under monopoly

(both with the price PW). In this problem,

we compare the welfare of Home consumers in

the no-trade situation and under free trade.

a. Under perfect competition, with the price

PW, label the triangle of consumer surplus

and the triangle of producer surplus.

Outline the area of total Home surplus (the

sum of consumer surplus and producer

surplus).

b. Based on your answer to part (a) in this

problem and part (a) of the last problem,

outline the area of gains from free trade

under perfect competition.

c. Under monopoly, still with the price PW,

again label the triangle of consumer surplus

and the triangle of producer surplus.

d. Based on your answer to part (c) in this

problem and part (d) in the last problem,

outline the area of gains from free trade

under Home monopoly.

e. Compare your answer to parts (b) and (d).

That is, which area of gains from trade is

higher and why?

under perfect competition and under monopoly

(both with the price PW). In this problem,

we compare the welfare of Home consumers in

the no-trade situation and under free trade.

a. Under perfect competition, with the price

PW, label the triangle of consumer surplus

and the triangle of producer surplus.

Outline the area of total Home surplus (the

sum of consumer surplus and producer

surplus).

b. Based on your answer to part (a) in this

problem and part (a) of the last problem,

outline the area of gains from free trade

under perfect competition.

c. Under monopoly, still with the price PW,

again label the triangle of consumer surplus

and the triangle of producer surplus.

d. Based on your answer to part (c) in this

problem and part (d) in the last problem,

outline the area of gains from free trade

under Home monopoly.

e. Compare your answer to parts (b) and (d).

That is, which area of gains from trade is

higher and why?

#### Top Answer

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