Question

why is consumer surplus relevant to understanding the impact of price discrimination on the buyers in the high price market?

Answer 1

First degree or perfect price discrimination is when a firm charges each consumer their maximum willingness to pay, which is reflected by the demand curve. ... However, each consumer is now paying her maximum willingness to pay, and therefore receives no consumer surplus.

When the demand for a good or service is perfectly elastic, consumer surplus is zero because the price that people pay matches exactly what they are willing to pay. ... Businesses often raise prices when demand is inelastic so that they can turn consumer surplus into producer surplus.

By selling to both groups at different prices the firm increases the quantity of the good it sells. Increase their profit. By charging different prices, the firm is able to capture more consumer surplus — the difference between the price a consumer is willing to pay and the price the consumer actually pays.