Deck 7: The Public Finance of Sports: Who Pays and Whyintroduction

Question 1

The "Winner's Curse" is suffered by:

A) Those who underbid.
B) Those who overbid.
C) Those who do not bid at all.
D) Those who win sufficiently to damage competitive balance.

Answer 1

B

Question 2

The Rent Gradient:

A) Rises as one approaches the mountains.
B) Falls as one approaches the stadium.
C) Falls as one approaches the city center.
D) Rises as one approaches the city center.

Answer 2

D

Question 3

A stream of 250,000, paid annually over three years) yields a present value of (assume an interest rate of 2.5%), rounded to the nearest 100.

A) $464,000
B) $727,000
C) $750,000
D) $714,000

Answer 3

D

Question 4

In Europe, soccer leagues have a promotion and relegation system where the teams in the top league with the worst record at the end of the season are relegated to the "minor" leagues and the minor league teams with the best record are promoted to the majors. Sports infrastructure is significantly less extravagant in Europe than it is in the United States with teams having older, smaller stadiums with less amenities. For example, until recently many English clubs had a significant amount of terrace seating, that is large flat terraces without seats generally used as standing room areas. How can the promotion and relegation system explain this difference?

Question 5

Why are lotteries a bad way to finance stadiums?

Question 6

What happens to a city's bid to host the Olympics if

A) stadium construction costs rise?
B) the city's NFL franchise offers to buy the Olympic stadium after the Games?
C) interest rates rise from 5 percent to 10 percent?

Question 7

A monopolist can force a consumer to buy a quantity larger than that dictated at by
the consumers demand curve (at a given price).

Question 8

How can cities that are competing for stadiums combat the monopsony power of sports leagues?

Question 9

The concept of "horizontal equity" is linked to the_______________________of taxation.

A) "Ability-to-pay".
B) "Minimum Deadweight Loss".
C) "Ramsey Rule".
D) "Benefits Principle".

Question 10

According to the "Ramsey Rule":

A) Sales taxes should be levied based upon ability-to-pay.
B) Sales taxes should be levied in direct proportion to price elasticity of demand for the good or service in question.
C) Sales taxes should be levied in inverse proportion to the price elasticity of demand for the good or service in question.
D) Sales taxes are never a good way to generate government revenue.

Question 11

Distinguish between horizontal equity and vertical equity.

Question 12

The Dodgers moved out of Brooklyn because:

A) They were making large accounting losses.
B) They were making large economic profits.
C) They were only breaking even from an accounting standpoint.
D) The opportunity costs of staying in Brooklyn were too high.

Question 13

A consumer facing an "all-or-nothing" purchase will choose to buy the product:

A) As long as producer surplus is positive.
B) As long as the consumer surplus is equal to the consumer loss.
C) As long as consumer surplus is at least as great as the consumer loss.
D) As long as consumer surplus is less than the consumer loss.

Question 14

Consumer surplus tends to be larger in a monopolized market than a competitive one.

Question 15

Measures of accounting profits include opportunity costs, whereas measures of economic profits do not.

Question 16

If you had to raise funds for the new stadiums in your city, how would you do so? Be explicit about any economic criteria that you would use in formulating your decision.

Question 17

The winner's curse suggests that

A) teams that do well one season will do less well the next season.
B) teams that win will be a burden to the team that hosts them.
C) cities often lose teams with winning records.
D) cities that attract a franchise typically pay too much.

Question 18

State the Ramsey Rule.

Question 19

If you wanted to finance a stadium with the most "efficient" tax possible, would you tax kidney dialysis or blueberry muffins? Why?

Question 20

Several years ago Miami proposed instituting a tax on all passengers embarking on a cruise from
the city in order to pay for a new stadium for the Florida Marlins. What did Miami think it might accomplish by taxing cruises? Why did the cruise lines object?

Question 21

If a Canadian NHL team receives its revenues in Canadian Dollars, but must pay its players in U.S. Dollars, a weakening of the Canadian Dollar relative to the U.S. dollar will cause.

A) The team's revenues to increase.
B) The team's revenues to decrease.
C) The team's costs to increase.
D) The team's costs to decrease.

Question 22

Explain why "sin taxes" imposed on goods such as alcohol and tobacco are considered an attractive tax type by governments.

Question 23

The notion that borrowing to finance a new stadium in a community does not less the tax burden on a community; rather, it simply delays the inevitable, as it substitutes taxes now for taxes later when it repays the debt is known as the__________________________in economics.

A) Ramsey Rule.
B) Liquidity Trap.
C) Marginal Analysis Rule.
D) Equivalence Theorem.