Gains for trade

Economics: Science of scarcity, Maximization of happiness under limited ressources

Microeconomics: Studies the choices the individuals and businesses make, and how they interact in markets

Macroeconomics: Study of the national or global economy (GDP, Growth, Debt, Unemployment)

Gains from trade

Trade is voluntary----Makes both parties better off

more interesting: How much better off

---Need utility = satisfaction = happiness

Derived from an activity

---Depends on context, person

---More than just money

---But, hard to measure, ''just a number'', no scale

---Cannot compare across people

Valuation

Buyer's valuation (V)= willingness to pay

= ''max amount of $ which you would spend on an object''

it's not egal to value ---subjective snd context depend

---Advantage: measurable in $

Seller's valuation (C)=willingness to accept

= ''min. amount of $ you need to sell somethings''

Trade requires: P is between C and V (Free trade condition)

C= 1000$

V= 1200$

P=1050

Seller's surplus= 50$-----V-P

Buyer's surplus= 150$---P-C

Total gains from trade= V-P + P-C = V-C=200 (independant of price !)

in case of many objects

For buyers

V(q)= Total valuation= Value you get from ''q'' units

---use marginal valuation= value of an additional unit

MV(q)= V(q)-V(q-1) ***Also measured in $, can be compared to P

EXAMPLE

MV(1)=1$

MV(2)=1$

MV(3)=0,50$ -----Decreasing marginal valuation

MV(5)=0$

***Total valuation always going up, but marginal valuation is going down

Surplus= V(q)- (p x q)

---Thinking at the margin, = maximize surplus!

Marginal surplus : objective

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