The advantages and disadvantages of price discrimination
Price discrimination helps firms earn more profit by charging different prices to different customers. But it can harm consumers by taking away the saving they would have made at a single lower price.
Formula
Additional Profit = Consumer Surplus Captured
Real World
Rail operator Avanti West Coast charges business travellers far more for the same seat than students with railcards, transferring consumer surplus to the firm while potentially extending access to lower-income passengers.
Exam Focus
Distinguish clearly between firm benefits and consumer effects — conflating them is a common mistake that loses evaluation marks.
Price Elasticity of Demand
PED = % change in quantity demanded ÷ % change in price
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