Help with an Econ question regarding gains from trade

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In summary, the equilibrium conditions in this market are P=46 and Q=42, and the maximum gains from trade is -168. The equation used to calculate the maximum gains from trade is A = (Qd - Qs)*P.
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jolly rodger
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Homework Statement



A free market can be described by the equations Qd = 180 – 3P and Qs = –50 + 2P. What are the equilibrium conditions in this market (that is, find equilibrium P and Q) and what are the maximum gains from trade in this market?

Homework Equations


The Attempt at a Solution



To find equilibrium, set Qd=Qs:

180 – 3P = –50 + 2P

Solve for P

P=46

Plug P into one of the equations to find Q

Qd = 180 – 3P

Qd = 180 – 3(46)

Solve for Q

Q=42

That is what is already known but can someone "EXPLAIN" to me how to figure out the gains from trade. Not just give me the answer. Is there an equation you use?
 
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  • #2
The maximum gains from trade in this market can be found by calculating the area between the two demand and supply curves. The area will represent the total potential gains of trade, and can be calculated as the following:A = (Qd - Qs)*PA = (42 - 46)*46A = -168 Therefore, the maximum gains from trade in this market is -168.
 

FAQ: Help with an Econ question regarding gains from trade

1. What are the gains from trade?

The gains from trade refer to the benefits that countries or individuals can obtain by participating in international trade. This includes increased efficiency, access to a wider variety of goods and services, and the potential for higher economic growth.

2. How do gains from trade affect a country's economy?

Gains from trade can have a positive impact on a country's economy by promoting specialization and division of labor, increasing competition, and allowing for the production of goods and services at a lower cost. This can lead to higher productivity, increased consumer choices, and improved standards of living.

3. What factors influence gains from trade?

There are several factors that can influence gains from trade, including a country's resource endowments, level of technological advancement, trade policies, and the availability of complementary goods and services. Additionally, the extent of trade barriers and the presence of economies of scale can also impact gains from trade.

4. How do gains from trade relate to comparative advantage?

Gains from trade are closely related to the concept of comparative advantage, which refers to a country's ability to produce a good or service at a lower opportunity cost than another country. When countries trade based on their comparative advantage, they can achieve gains from trade and improve overall efficiency.

5. Can gains from trade benefit all parties involved?

Yes, gains from trade can benefit all parties involved if trade is conducted on a voluntary and mutually beneficial basis. However, it is important to note that not all individuals or industries within a country may benefit equally from trade, and there may be winners and losers depending on the specific circumstances.

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