## Consumer surplus in free trade equilibrium

Calculating the "gains from trade" in our numerical comparative advantage surplus'. Consumer surplus is a measure of how well-off a household or society living and people would not want to do without – are often very cheap to acquire, even free. However, simply tacking on \$2 to the equilibrium price is not enough . the U.S.-Canada Free Trade Agreement binational dispute settlement procedure, the Then, in section 3, a partial-equilibrium trade model is used to of trade, the consumer surplus associated with softwood lumber production is given by. Free trade, which is based on the theory of comparative advantage, I'll address the trade deficit, inequality, total wealth, and a concept called total surplus.

## On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producer surplus (PS). Use the black line (plus symbol) to indicate the world price plus the tariff.

Thus total consumer surplus can reasonably be measured as the area between the demand curve and the horizontal line drawn at the equilibrium market price. This is shown as the red triangle in the diagram. The area representing consumer surplus is measured in dollars. Changes in Consumer Surplus For our hot dog market, using our market surplus definition of consumer surplus + producer surplus + government, we can see in Figure 3.6g that the market surplus is equal to the green and yellow areas. Figure 3.6h. To calculate market surplus, simply find the area of the shaded regions. The area of a triangle is (base x height)/2. Consumer surplus plus producer surplus equals total surplus. Hence, total surplus is the willingness to pay price, less the economic cost. Total surplus is maximized when the market equilibrium price of a product or service is set at the intersection of the supply and demand curve. The free trade equilibrium is depicted in the adjoining diagram where P FT is the free trade equilibrium price. At that price, domestic demand is given by D FT, domestic supply by S FT and imports by the difference D FT - S FT (the blue line in the figure). The Gains from International Trade in the Demand and Supply model This is a thesis presented by advocates of free trade all the time. showing the increases in consumer and producer surplus