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Gains From Trade

Consumer Surplus

Quantifying Welfare E ects

Producer Surplus

Welfare in Equilibrium

Welfare in Equilibrium

Q: How can we measure the gain or loss caused by market intervention/regulation? A: Use consumer and producer surplus: total surplus = CS + PS. Our benchmark will be competitive, free-market equilibrium

Price

Supply

CS

p

PS

Demand

q

Snuggly blankets

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