Welfare will be increased by the transfer of one unit of some good X from Region B to Region A if the price that would clear the market in Region A given one more unit of supply exceeds the price that clears the market in Region B by more than the cost of transporting one unit of X from Region B to Region A.

Question

Quizplus · Accepted Answer

If the price that would clear the market in Region A given one more unit of supply exceeds the price that clears the market in Region B by more than the cost of transporting one unit of X from Region B to Region A, then there is a potential gain in welfare by transferring one unit of X from Region B to Region A. This is because the price signals that there is greater demand for X in Region A than in Region B, and transferring one unit of X will help satisfy that demand at a lower cost than producing it in Region A. Therefore, welfare can be increased by this transfer.

Welfare Will Be Increased by the Transfer of One Unit