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Gains From Trade

Consumer Surplus

Quantifying Welfare E ects

Producer Surplus

Consumer Surplus: Example

Suppose that the price of a beer is $4.25.

Q: How many beers will the consumer buy?

A: 3 Q: What is the consumer surplus?

A: (10 + 8 + 6)

(3 × 4 25) = $11 25

R e s e r v a t i o n P r i c e C u r v e f o r ( $ ) R e s . Values P r i c e

10 8 6 4 2 0

p = 4.25

1

2

3

4

5

6 Beers demanded

G

li

(

ll

)

Welfare in Equilibrium

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