Question

Which of the following is an argument economists make in favor of allowing price discrimination?

a.it increases consumer surplus

b.it leads to a more fair distribution of the total surplus

c.it increase total surplus

d.both b and c

e.none of the above

Answer 1

d. Both b and c

Reason : Price discrimination involves charging of different prices to consumers in accordance to their willingness to pay.

Price discrimination results to a rise in both consumer surplus ( as each consumer pays in accordance to his capacity) and producer surplus ( as they are able to sell maximum goods and capture the interest of maximum people). Hence the total surplus rises.

The distribution of total surplus is fair because both sides ie the consumers and the producers are able to excercise their roles with holding their maximum capacities.