Saturday, April 3, 2010

Cant fool me!! I am going to PROTECT my Consumer Surplus!!!

Can't  fool me! I am going to PROTECT my Consumer Surplus!!!  Not going to fall for the blatant Price Discrimation going on here!!! 
An alternative way to understand First Degree Price Discrimination is as follows: This type of price discrimination is primarily theoretical because it requires the seller of a good or service to know the absolute maximum price that every consumer is willing to pay. As above, it is true that consumers have different price elasticities, but the seller is not concerned with such. The seller is concerned with the maximum willingness to pay (or reservation price) of each customer. By knowing the reservation price, the seller is able to absorb the entire market surplus, thus taking all of the consumer's surplus from the consumer and transforming it into revenues. From a social welfare perspective though, first degree price discrimination is not necessarily undesirable. That is, the market is still entirely efficient and there is no deadweight loss to society. In a market with first degree price discrimination, the seller(s) simply captures all surplus. Efficiency is unchanged but the wealth is transferred.
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