Deck 2: Review of the Economists Arsenal

Question 1

Suppose the Lakers did a study that showed that the demand for tickets was perfectly inelastic at the capacity of building up to a price of $500 per ticket, at which point it becomes perfectly elastic. Draw a supply and demand diagram assuming a building capacity of 20,000. What would this imply about their best pricing strategy?

Answer 1

When the demand curve is perfectly inelastic, it is a vertical line. When it is perfectly elastic, it is a horizontal line. Hence, it looks like this:
Figure 2.7
Assuming that the supply curve is a vertical line at the capacity of the arena (20,000), the supply can demand picture looks like this:
Figure 2.8
where the heavy black segment is the intersection of the supply and demand curves. This implies that the Lakers can sell 20,000 seats at any price up to $500. At any price above
$500, they cannot sell any seats. The best strategy is thus to sell tickets for $500 each.

Question 2

If the Detroit Pistons raise their ticket prices and see ticket revenues fall (holding all else equal), we can conclude that

A) the supply of tickets is too high.
B) the demand for tickets is too low.
C) the demand for tickets is price inelastic.
D) the demand for tickets is price elastic.

Answer 2

D

Question 3

Sue does not attend any sporting events. Draw a budget constraint and indifference curve diagram with two goods (sporting events and all other goods) to explain why Sue is still maximizing her utility.

Answer 3

See Figure 2.2. Sue maximizes her utility by climbing to the highest indifference curve (U2) that is still within her budget. The combination happens to be one, which includes zero sporting events. This is called a corner solution. One does not have to consume something of everything in order to maximize one's utility. In a single visit you do not buy a little of every single item available of the grocery store but you leave (presumably) happy with the choices that you have made from among those that you can afford.
Figure 2.2

Question 4

True or False; explain your

Question 5

A price ceiling on tickets creates

A) excess demand, which creates gray and black markets.
B) excess supply, which causes prices to fall.
C) excess demand, which cause prices to fall.
D) excess supply, which causes gray and black markets.

Question 6

Professional sports first arose in England and the United States because

A) Anglo-Saxon culture is more attuned to athletics than other cultures.
B) the Industrial Revolution increased the productivity of workers there.
C) employers used sports as a way to channel the frustrations of workers.
D) the educational system in England was more attuned to sports than other nations.

Question 7

The fact that attendance rises at baseball stadiums during "bobblehead" days suggests

A) baseball games and bobbleheads are complements.
B) baseball games and bobbleheads are substitutes.
C) baseball games and bobbleheads are normal goods.
D) no information about baseball games and bobbleheads can be determined from this fact.

Question 8

Assume that a professional franchise faces a downward sloping demand for game day attendance and that the team sells out every game. Assume that this team competes with several other entertainment alternatives for the consumer's dollar. Explain why this team will choose to pay all of a $t tax per ticket imposed by the government instead of passing the tax onto the consumer.

Question 9

A fan called a talk show and exclaimed, "I've had it with professional sports. The building is always sold out, and the tickets are too expensive!" Use supply and demand analysis, including graphs, to show that these claims cannot both be true simultaneously.

Question 10

Given the following regression equation with t-statistics in parentheses:
Salary  566,400  71,928 Goals  20,403 Assists  98,430 All-Star
(3.45) (2.96) (3.5) (1.30)
R₂  0.95
Salary  NHL Salary in $
Goals  Number of career goals
Assists  Number of career assists
All-Star  1 if All-Star in the previous season, 0 otherwise.
(a) Interpret the R2.
(b) Interpret the coefficient on All-Star.

Question 11

If the Celtics sign Kevin Garnett to a big contract they may raise ticket prices because

A) their average cost curve shifts up.
B) their demand curve shifts right.
C) their marginal cost curve shifts up.
D) their fixed cost curve shifts up.

Question 12

If a game is not sold out, the marginal costs to a team accommodating one more fan is:

A) Almost infinite.
B) Half the average ticket price.
C) Essentially zero.
D) The inverse of marginal costs.

Question 13

Given that attendance at minor league baseball games are substitutes for attendance at MLB games. Explain why a fall in minor league ticket prices may adversely affect MLB game attendance.

Question 14

Suppose a monopoly team faces demand for a sporting event of Q  100  p. The associated marginal revenue function is MR  100  2Q. If marginal cost is zero, what are the optimal quantity (of tickets) and price per ticket? If fixed costs are $500, what would the level of profit be?

Question 15

Why are season tickets cheaper than tickets for the same number of games when they are purchased individually?

Question 16

A MLB economist is very good at what she does. She has been tracking the demand for MLB tickets in the United States for years. She knows from past research that the demand curve looks like the one in Figure 2.4. MLB has just introduced a temporary price reduction on all general admission tickets from $15.00 per seat to $10.00 per seat. Given the demand curve and this decrease in price
from $15.00 to $10.00, she expects to see an increase in quantity from 5000 units (per week) to 10,000 units per week. However, she is surprised to see a surge in demand from 5000 units to
20,000 units. Clearly this new point A does not lie on the demand curve. What is going on here? Give an economic argument to justify the existence of this new point. Assume that the economist did not make a mistake in her calculations.
Figure 2.4

Question 17

Suppose that the demand curve for seats at a minor league baseball stadium in Trenton, N.J.,, is Q^d  6,000  10p.
a) How many fans would attend if ticket were free?
b) At what price would no fans attend the game?
c) If the building capacity supply) is fixed at 4000, what price would maximize revenue while ensuring a sellout?

Question 18

Suppose the city of Anaheim places a tax on tickets to see the Mighty Ducks play. Use supply and demand curves to shows that the fans and the team share the burden of the tax.

Question 19

Given that parking and attendance at ballgames are complements (in consumption). Explain why a rise in parking fees may adversely affect game attendance.

Question 20

Draw a set of indifference curves for two goods X and Y where X is a bad (penalties against your favorite team) and Y is a good (wins for your favorite team).

Question 21

A negative aspect of anti-scalping laws is that:

A) They hurt ticket agencies.
B) They prevent sell-outs.
C) They cause people to pay more than they are willing to get tickets.
D) They prevent the market from matching willing buyers and sellers.

Question 22

If tickets to a Rancho Cucamonga Quakes game are considered an inferior good, falling incomes of their fan base will:

A) Cause the price of Quakes tickets to fall.
B) Leave demand for Quakes tickets unchanged.
C) Reduce demand for Quakes tickets.
D) Increase demand for Quakes tickets.

Question 23

A horizontal demand curve represents:

A) Perfectly inelastic demand.
B) Perfectly elastic demand.
C) Unit elastic demand.
D) None of the above.

Question 24

An increase in the price of a good results in a leftward shift of the demand curve for that good, ceteris paribus.

Question 25

If the price and quantity combinations for a monopolists good are as follows: Price: $100 $90 $75 $64 $51 $38
Quantity: 0 1 2 3 4 5
What is the marginal revenue for the firm when they move from 2 to 3 units of output?

A) $-14
B) $60
C) $42
D) $12

Question 26

We can show the impact of a per-unit tax on tickets in MLB as a:

A) Rightward shift of the demand curve.
B) Increase in fixed costs.
D) Leftward shift of the supply curve.
D) Rightward shift of the supply curve.

Question 27

True/False: The fact that Mantle cards from the same year and manufacturer are so much more valuable than Aaron cards provides clear evidence of racial discrimination by baseball card collectors.