Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Consumer surplus increases as all consumers pay lower prices.
B
Consumer surplus decreases as consumers are charged different prices.
C
Consumer surplus remains unchanged due to market competition.
D
Consumer surplus is maximized for all consumers regardless of price.
Understanding the Answer
Let's break down why this is correct
Answer
Price discrimination is when a company charges different prices to different customers for the same product based on their willingness to pay. When a company successfully uses this strategy, it often reduces consumer surplus, which is the extra benefit consumers get when they pay less than what they are willing to pay. For example, if a movie theater charges $10 for a ticket to some customers and $5 to others, those who pay $5 enjoy a larger consumer surplus. However, the theater captures more revenue from those who are willing to pay $10, which means the total consumer surplus is lower overall. Thus, while some consumers may still benefit, the company's profits increase, leading to a decrease in the total consumer surplus available in the market.
Detailed Explanation
When a company charges different prices to different people, some consumers pay more. Other options are incorrect because Some might think that lower prices for everyone would help everyone; It's a common belief that competition keeps prices the same.
Key Concepts
Price Discrimination
Consumer Surplus
Market Power
Topic
Understanding Price Discrimination
Difficulty
easy level question
Cognitive Level
understand
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