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Welfare Implications of Equilibrium Supply and Demand Curves in an Open Economy
Author(s) -
Bullock David S.
Publication year - 1993
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1242953
Subject(s) - economics , partial equilibrium , general equilibrium theory , supply and demand , distortion (music) , welfare , confusion , proposition , open economy , microeconomics , demand curve , market economy , macroeconomics , exchange rate , psychology , amplifier , philosophy , cmos , epistemology , electronic engineering , psychoanalysis , engineering
Line integral theory is used to prove that in a closed economy the net domestic social welfare effects of a market distortion can be captured in the distorted market alone by using equilibrium supply and demand curves. Considerable confusion exists in the applied literature about the proper application of this proposition. It is shown that the proposition does not generally hold for open economies. It is shown that in general neither geometric areas behind equilibrium supply curves nor geometric areas behind equilibrium demand curves have any welfare significance.