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Price discrimination example

We all know that industries price discriminate all the time. The airline industry does it everyday. For instance, two individuals seeking an economy-class seat on an airplane may pay different prices for the same class seat.

QUESTION:
Economically speaking, why is someone who pays more for their coach-class (economy-class) ticket made better off than someone who pays less?

The answer has something to do with the value they place on the flight and the cost they paid. Could you help me figure this out?

Solution Preview

First thing that we should keep in mind while answering this question is that economic profits are not the same as accounting profits. Economics also talk about utility maximization (in contrast ...

Solution Summary

The solution explains the concept of price discrimination using an example.

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