Tim values treat for his dog at $10 per box, and John values them at $6 per box. If the price of dog treats is $3 per box, but only one box is available between these two buyers, then gains from trade will be maximized when:

a. Tim buys treats.

b. either buys the treats since they both value them more than the market price.

c. consumer surplus is equal to $3.

d. John buys treats.

A. Tim buys the treats

Explanation:

Gains from trade is the net benefit to economic agents from being indulgent in trade. It is the sum of increase Consumer Surplus & Producer Surplus.

Consumer Surplus is the difference between the price he pays, the maximum price he could have paid for the product. Graphically, it is the area above the price, below the demand curve.

Producer Surplus is the difference between the price he sells at, the minimum price at which he could have sold the product. Graphically, it is the area above the supply curve, below the price level.

In this Case : Since Tim values dog treat more, he would be having more willingness to pay (lets say = $10). So, the consumer surplus = $10-$3 = $7.

Since John values them lesser, he would be willing to pay less (lets say=$6) So the consumer surplus = $6 - $3 = $3.

There is no change in producer surplus - prices are same, nothing about producers' minimum sale inducing value.

So, considering only given consumer Surplus : It will increase by $7 if Tim buy treats, It will increase by $3 if John buys it. Hence, purchase by Rim is better (given only 1 box) as per perspective of benefit of trade.