How much does he gain from the discount scheme

Reference no: EM131139684

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.

Reference no: EM131139684

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