Test 1

1) The marginal cost of admitting an additional fan to watch the Sacramento Kings play basketball is close to zero, but the average price of a ticket to a Kings game is about $60. What do these facts tell you about the market in which the Kings operate? Justify your answer.

2) True or False; graph and explain your answer: If the Anaheim Mighty Ducks acquire a star player, the demand for their tickets will rise. This will cause the price of their tickets to rise, causing demand to fall, restoring the initial price and quantity of tickets.

3) True or False: Graph and explain your answer. Maximizing revenue is the same thing as maximizing profits.

4) The Arizona Diamondbacks, who play at Chase Field (capacity: 49,033), averaged 26,281 fans a game during the 2009 season, whereas the Phoenix Suns, who play at US Airways Center (capacity:18,422), averaged 18,422 fans a game during the 2008-2009 season. Use graphs and words to explain why both the Diamondbacks and Suns follow optimal strategies to maximize profits.

5) Assume that the market for footballs is perfectly competitive. Graph and explain the impact of a new cheaper leather substitute. In your answer be sure to explain which curve shifts and in what direction, what the changes in price and quantity will be. Explain the equilibrium process in this example.

Test 2

1) The Florida Marlins of MLB recently shed most of their best players. In 2006, their payroll was less than one-tenth that of the New York Yankees. Would a team in England's Premier League follow such a policy? Why or why not?

2) An executive for the Toronto Blue Jays once bragged that he could turn a multi-million dollar profit into a multi-million dollar loss without violating generally accepted accounting principles. Show how a team might be able to do this.

3) Explain the economic reasoning behind the downward slope of the labor demand curve

4) Distinguish between general and specific training as it pertains to the human capital theory. Give an example of each kind.

5) Create a payoff matrix in which there is no dominant strategy.

6) What is the invariance principle? How did Ronald Coase originally relate it to solving problems of pollution? What is the problem with using the invariance principle to actually solve pollution problems in practice?

Final Exam

1) Use supply and demand curves to predict the consequences on the price of tickets of hiring a big name star (The N.Y. Rangers sign Pavel Bure, for example). Be certain to carefully explain why you have chosen to shift, or not shift the curves.

2) What is a threat point?

3) What are the two equity criteria for a good tax? Why are they often in conflict?

4) According to public choice theory, why is the media so important in political decisions? How does this apply to the case of professional sports subsidization?

5) How would a decrease in demand for cars affect the marginal revenue product of auto workers?

6) Collusion is illegal in Canada, yet professional sports teams argue that, in their industry, it is inevitable. Explain.

7) If sports teams are profit maximizing, and there are no labour market restrictions, why would large market teams win more games than small market teams? Is this inevitable? Be very specific about why teams invest in playing talent to win games. Graph and explain.

8) Many people were concerned that if professional sports teams abandoned the reserve clause, small market teams would become less competitive. Economists have argued that the Coase Theorum implies that this would not happen. What is the Coase Theorum? How does it apply to this issue?

9) Cleveland voted to fund its new sports facilities through a tax on gambling. Let's say that this was done through a tax on firms that sold lottery tickets. Who would bear the burden of this tax?

10) Explain the economic reasoning behind the downward slope of the labour demand curve.

11) If you had to advise the local government about the best method to raise funds for a new stadium, what would you tell them? In your answer be explicit about any economic criteria that you would use in formulating your decision.

12) According to public choice theory why do sports teams get subsidized?

Back to Ian Hudson's Main Page