Students at the University of California, Los Angeles, enjoy several privileges. One is a good education at a low price. Another is California's unbeatable weather, and a third is access to discounted movie tickets. Suppose that Alan buys 12 tickets a year at $7 rather than the full price of $10. By how much does he gain from the discount scheme?
(a) One answer is that Alan "saves" $10 - $7 = $3 on each ticket, which adds to a total of $3 x 12 = $36. Explain why this under-estimates Alan's gain.
(b) Using a suitable figure and the concept of buyer surplus, explain how much Alan gains from the discount scheme.
(c) Taking account of the discount movie scheme, by how much could the University raise Alan's tuition fees?