Suppose the market for golf clubs has moved from a perfectly competitive market to one that is completely dominated by firms practicing perfect price discrimination.Which of the following statements is true about the change in welfare?
A) The change creates a deadweight loss.
B) Society's total welfare is zero after the change.
C) There is a decrease in deadweight loss accompanied by a decrease in producer surplus.
D) Some surplus has been lost to society,but consumers are better-off overall.
E) All of the surplus previously enjoyed by consumers has been shifted to producers.

Question

Quizplus · Accepted Answer

In a scenario where firms move from perfect competition to practicing perfect price discrimination, they are able to charge each consumer the maximum they are willing to pay. This results in all consumer surplus being transferred to the producers, leaving consumers with no surplus. There is no deadweight loss because the firms are able to sell to every consumer willing to pay at least the marginal cost, thus maximizing total welfare but shifting the distribution of that welfare entirely to producers.

Suppose the Market for Golf Clubs Has Moved from a Perfectly