Chapter 2 Basic theory Using Supply and Demand Chapter 2 Basic theory Using Supply and Demand. Producer and Consumer Surplus Link to Syllabus Chapter 2. Producer and Consumer Surplus Defies consumer surplus: the increase in the economic well being for consumers who are ale to buy the product at a market price than the maximum they are willing to pay producer surplus ... Arbitrage buying something in one market, selling it in another to profit from the price difference. Figure 2.2 (page 25) does supply and demand, producer and consumer surplus. Someplace in this chapter he notes that half of world trade is among DCs. Description of first paper

World Exports, 2009. p. 20 World Exports, 2009. p. 20

Volume of World Trade and Output, 1960-2010. P.23

Exports Plus Imports/GDP p. 21 Trade is becoming more important everywhere: doubled in the US

Consumer Surplus (p. 19): the increase in the economic well being for consumers who are able to buy the product at a market price lower than the maximum they are willing to pay. [the area between the demand curve, the price line, and vertical axis] Producer Surplus (p. 23): the increase in the economic well-being of producers who are able to sell the product at a market price higher than the lowest price at which they would have produced. [the area between the supply curve, the price line, and vertical axis]

Figure 2.2 page 24 The market for bikes Total domestic supply and demand. Producer surplus is h Consumer surplus is c Figure 2.2 page 24. Producer and consumer surplus (market for bikes) Producer surplus is h, consumer surplus is c. Gains from trade.

Figure 2.3 Page 25 Effects of trade on production, consumption and price Figure 2.3 page 25 Effects of trade on production, consumption, etc., using supply and demand. Comments that the evaluation of gains uses the “one-dollar, one-vote metric.” (page 26). Importantly, this ignores distributional issues. Doesn’t seem to use the terms excess supply and excess demand.

Figure 2.4 page 28 Effects of trade on well-being of producers, consumers, nation Welfare effects of free trade: imported motorbikes. US consumer surplus increases, producer’s decreases, net effect =b+d RoW: consumer lose, producers gain, net effect is n Word is sum of both.