Reservation price

As a reservation price or reservation price is defined in microeconomics from the perspective of the consumer the maximum price he is willing to pay for a good or service (for example, depending on income and preferences ) and from the perspective of the provider the minimum price that he would accept ( eg due to changes in input prices and expectations).

In the right-side diagram we find the reservation prices as intersections of the supply function ( S) and demand function (D) with the ordinate (y -axis). In this model, the reservation prices of the providers are exactly zero (here the origin of coordinates ), because at this price no one wants to produce (in theory would here the saturation level is reached); the reservation price of the demand is variable and is called prohibitive - in both cases, the quantity supplied or demanded is equal to zero.

Deviates from the market price of the reservation price, the result is a utility difference, referred to in welfare theory as consumer surplus and producer surplus.

With perfect price discrimination, a seller in a position of each customer is just to ask the price, which is his reservation price. The seller receives so that the consumer surplus to the full extent of what is true in general not associated with welfare losses, in economics but referred to as price discrimination and is associated with market failure.