Explain how consumer surplus changes when a monopoly price discriminates
What will be an ideal response?
When a monopoly price discriminates, it charges different prices for different units of the product or it charges different prices to different consumers. Consumer surplus is the value (or marginal benefit) of a good minus the price paid for it, summed over the quantity bought. When the monopoly price discriminates, it decreases the consumer surplus on the units for which it charges a higher price to its initial customers. But it increases the consumer surplus on units for which it charges a lower price to new customers. If a monopoly is able to perfectly price discriminate, it totally eliminates consumer surplus because it charges every consumer the highest price the consumer is willing to pay.
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