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490 CHAPTER 12 CAPTURING SURPLUS
12.2 To understand first-degree price discrimination, think of the demand schedule for a

FIRST-DEGREE product as a willingness-to-pay schedule because the demand curve represents the
amounts consumers are willing to pay for the units they purchase. Since the demand
PRICE curve slopes downward, the consumer buying the first unit is willing to pay a higher
DISCRIMINA- price than the consumer buying the second unit. The maximum willingness to pay de-
TION: MAKING clines with each successive unit purchased.
First-degree price discrimination is ideal from the seller’s viewpoint. If the seller
THE MOST can perfectly implement first-degree price discrimination, it will price each unit at the
FROM EACH maximum amount the consumer of that unit is willing to pay. 3
CONSUMER Suppose that you own a particular line of designer jeans and that all of the cus-
tomers in the market walk in to your store. When each customer enters, suppose fur-
ther that you can see indelibly and truthfully stamped on her forehead the maximum
amount she is willing to pay for a pair of your jeans. Once all of the customers are in
your store, you will know the demand curve for your jeans, as shown in Figure 12.2
(the curves in this figure are identical to those in Figure 12.1).

Price ($ per unit) P m E G F H A J MC

1
P
L B
N
FIGURE 12.2 Uniform K
Pricing versus First-Degree
Price Discrimination MR (uniform price)
With uniform pricing, the pro- D
ducer sells Q m units at price 0 Q Q 1
m
P m . In this situation, the pro- Quantity (units per year)
ducer does not capture all of
the consumer surplus and there
is a deadweight loss. With first- First-Degree Price
degree price discrimination, Uniform Pricing Discrimination
the producer sells Q 1 units
(i.e., all the units for which the Consumer surplus zero
price is equal to or greater E + F
than P 1 , where price equals
marginal cost). The producer Producer surplus G + H + K + L E + F + G + H + J + K + L + N
sells each unit to the consumer
with the highest reservation T otal surplus E + F + G + H + K + L E + F + G + H + J + K + L + N
price for that unit, at that
price. The producer captures Deadweight loss zero
all the surplus and there is no J + N
deadweight loss.

3 For this reason, some texts call first-degree price discrimination perfect price discrimination.