Why, from an economic perspective, is price discrimination desirable?
A)The increase in profits is more than offset by the loss in consumer surplus, resulting in a net increase in economic surplus.
B)It enables firms to increase profits with no loss in economic surplus, and in turn, this could provide firms with incentives to engage in beneficial product innovation.
C)The increase in profits results in higher corporate tax revenues received by the government, which could be used to subsidise consumption for low-income individuals.
D)It redistributes wealth from wealthy consumers to highly innovative firms.

Question

Quizplus · Accepted Answer

Price discrimination allows firms to capture more value from consumers who are willing to pay more for a product or service. This increases profits without reducing economic surplus, and can provide incentives for firms to invest in product innovation. As a result, price discrimination is often considered desirable from an economic standpoint. Option A is not accurate because price discrimination can increase economic surplus if the increase in producer surplus outweighs the decrease in consumer surplus. Option C is not accurate because the increase in profits from price discrimination does not necessarily translate into higher corporate tax revenue. Option D is not accurate as it is not the primary goal or outcome of price discrimination.

Why, from an Economic Perspective, Is Price Discrimination Desirable