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Gains From Trade

Consumer Surplus

Quantifying Welfare E ects

Producer Surplus

Welfare in Equilibrium

Gains From Trade

Examples:

Suppose you had to pay to download iTunes, but once you did, you could buy as many songs as you like for $1. You have to pay a cover charge to get into a bar. Once you’re in, beers are $3.50 a pint. Costco sells cheap goods in bulk, but you have to pay a membership fee.

What is the most you would pay to enter these markets?

You would pay up to the dollar value of the gains-to-trade you would enjoy once in the market.

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