The concepts of consumer and producer surplus can be used to assess the benefits of free trade. The different between the amount that consumers would be prepared to pay for a good or service rather than go without, and the price that they actually pay is called consumer surplus. It is used as a measure of satisfaction or welfare of consumers. The difference between the price that producers would be prepared to sell their produce at and the price that they actually sell it at is the producer surplus. These two together are a measure of the welfare of the product.
In a perfectly competitive market in a closed economy where the equilibrium market price and quantity is Q0 and P0, the consumer surplus is shown by the area ABC. The producer surplus is shown by the area CB0. The total level of welfare would be equal to the area AB0.
If the country now takes part in world trade, citizens of that country can now buy goods and services at the world price of Pw . This is below the domestic equilibrium market price of P0. The horizontal world price line indicates that domestic producers have to accept the world price and cannot influence it due to their limited size. They are price takers. Domestic consumers can purchase all they need from other countries at the price Pw. In the model above domestic consumers will consumer Q2 of which Q0 will be purchased from domestic producers and Q2-Q0 imported.
As a result of international trade consumer surplus has increased to ADPw. Consumers have gained CBFPw of consumer surplus at the expense of domestic producers who have seen their producer surplus fall to PwF0. Consumers have also gained consumer surplus, FBG as they are now able to buy the good from more efficient foreign producers. There is also an additional gain in welfare, BGD, which has resulted from consumers simply buying more goods because of the lower price. Overall society has experienced a welfare gain of BFD.
In addition it should note that consumers have also gained as a result of additional choice. As many factors of production are not geographically mobile world trade will increase the range of choice of goods and services that people can enjoy.