Price discrimination adds to social welfare in the form of:

• A. higher consumer surplus for all buyers
• B. increased total output and reduced deadweight loss
• C. lower producer surplus
• D. uniform pricing for all consumers

Answer: (B)

Verified step by step guidance

1. Understand the concept of price discrimination: it occurs when a firm charges different prices to different consumers for the same good or service, based on their willingness to pay.
2. Recall that under uniform pricing, some consumers with lower willingness to pay may be priced out of the market, leading to deadweight loss because mutually beneficial trades do not occur.
3. Recognize that price discrimination can increase total output by allowing the firm to sell to more consumers who would otherwise be excluded under a single price, thus reducing deadweight loss.
4. Note that while consumer surplus may not increase for all buyers (some pay higher prices), the overall social welfare improves because the sum of consumer and producer surplus (total surplus) increases.
5. Conclude that price discrimination leads to increased total output and reduced deadweight loss, which adds to social welfare, rather than simply increasing consumer surplus or lowering producer surplus.