Gains From Trade
Quantifying Welfare E ects
Welfare in Equilibrium
Willingness to Pay for 1 Unit
Q: How much would a consumer pay for a unit of a good?
A: Reservation Price = the maximum price that the consumer is willing to pay for a unit.
Example: suppose utility is quasilinear, i.e.
U(b, d) = v(b) + d,
where b is the number of beers consumed and d is the amount of money (dollars) spend on other goods.
Successive reservation prices:
. . .