Buyer values V; seller incurs cost C.
1. If a buyer values an item at and pays , what is her gain from trade?
2. A seller with cost sells an item for . What is the seller’s gain from trade?
3. A buyer values a good at , a seller’s cost is , and the transaction price is . What is the total gain from trade?
What is a buyer's valuation V in trade?
The cutoff point below which the buyer wants to trade.
How is the buyer's gain from trade calculated?
It is V minus P.
What is a seller's cost C in trade?
The cutoff point above which the seller wants to trade.
How is the seller's gain from trade calculated?
It is P minus C.
What is the formula for total gain from trade?
Total gain is .
How is total gain from trade related to buyer's and seller's gains?
It equals buyer's gain plus seller's gain.
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