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Gains From Trade

Consumer Surplus

Quantifying Welfare E ects

Producer Surplus

Welfare in Equilibrium

Consumer Surplus

Say what? not?

Reservation-price curve =6

demand curve?

Why

Reservation-price curve describes sequential purchases of single units

Demand curve describes willingness-to-pay for q units purchased simultaneously?

Q: What difference does it make? A: Income effects.

But. . . in our example, utility is quasilinear in income, so there are no income effects & CS is an exact measure of gains from trade.

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