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Gains From Trade

Consumer Surplus

Quantifying Welfare E ects

Producer Surplus

Welfare in Equilibrium

Equivalence Under Quasilinear Utility

In general, CV , EV , and

CS are not the same. But they do

coincide if utility is quasilinear:

U ( c 1

, c 2

) = v ( c 1

) + c 2

.

W i t h p r i c e s ( p , 1 ) , i f t h e c o n s u m e r c h o o s e s c 1 u n i t s o f g o o d 1 ,

her consumption

of good

2 is m

p c 1

.

Total utility:

U = v ( c 1 ) + m

p c 1

On the other hand, with prices (p , 1), total utility is

U

= v(c ) + m

p c 1

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