Economics of Sports The 5th Edition Leeds Solutions Manual
Economics of Sports The 5th Edition Leeds Solutions Manual
Chapter 2
Review of the Economist’s Arsenal
Outline
Introduction
Learning Objectives
The opening discussion explaining the workings of the economists models are worth an overview for
every type of student body. The appendix on regression is not essential, but recommended, as students
will have a much greater appreciation for the models if they understand the regression-based analysis that
is so prevalent in the literature.
2.3 The major North American sports leagues prohibit teams from locating within a specific distance of
an existing team. Why do they have such a rule?
Answer: The presence of another team in the same city reduces each team’s monopoly power
since the other team(s) provides a substitute for the team’s product. By limiting
competing teams’ ability to locate within a specific distance of an existing team, in
effect the league is granting each franchise a local monopoly.
2.4 Use supply and demand to show why teams that win championships typically raise their ticket prices
the next season.
Answer: Since fans typically like winning and since their good memories persist for at least one
season, championship teams generally experience an increase in demand for their
Economics of Sports The 5th Edition Leeds Solutions Manual
product. An increase in demand shifts the demand curve to the right leading to an
increase in equilibrium prices.
2.5 Use a graph with attendance on the horizontal axis and the price of tickets on the vertical axis to show
the effect of the following on the market for tickets to see the Vancouver Canucks play hockey.
(a) The quality of play falls, as European players are attracted to play in rival hockey leagues in
their home countries.
(b) Vancouver places a C$1 tax on all tickets sold.
(c) A recession reduces the average income in Vancouver and the surrounding area.
(d) The NBA puts a new basketball franchise in Vancouver.
Answers: In each case, the student should show a supply and demand graph, with the appropriate
shift of the correct curve.
(a) Demand shifts left, price decreases, equilibrium quantity decreases.
(b) This can either be shown as a leftward shift of the demand curve or a leftward shift
of the supply curve. In either case, if a fixed (per unit) tax is placed on tickets the
vertical distance between the new and old curves should equal the tax.
(c) Demand shifts left, price decreases, equilibrium quantity decreases.
(d) Demand shifts left, price decreases, equilibrium quantity decreases.
2.6
2.7
2.8 The New York Jets football team raises ticket prices from $100 to $110 per seat and experience
a 5 percent decline in tickets sold. What is the elasticity of demand for tickets?
Answer: %Q/%p 0.05/(10/100) 0.50. Demand is inelastic since | | 1. Alternatively,
if a price increase of 10 percent leads to a 5 percent decline in ticket sales, the elasticity
is 5/10 or 0.50. Since the law of demand states that an increase in price always leads to
a decrease in the quantity demanded, it is common practice to drop the negative sign when
discussing a good’s own-price elasticity of demand.
2.9 Since the 1990s, many Major League Baseball teams have moved to new stadiums that are far smaller
than the ones they have replaced. Use the appropriate curves to show what this has meant for ticket
prices.
Answer: Starting with a regular supply and demand graph, a reduction in the number of seats
shifts supply to the left. Equilibrium prices rise. (As an aside, newer stadiums also
provide more amenities to the fans which should serve to shift demand to the right
raising equilibrium prices even further.)
2.10 Suppose the Tampa Bay Rays baseball team charges $10 bleacher seats (poor seats in the outfield)
and sells 250,000 of them over the course of the season. The next season, the Rays increase the price
to $12 and sell 200,000 tickets.
(a) What is the elasticity of demand for bleacher seats at Rays games?
(b) Assuming the marginal cost of admitting one more fan is zero, is the price increase a good idea?
Answer: (a) %Q/%p ((200,000 250,000)/250,000)/((12 10)/10) 1.00. Demand is
unit elastic since | | 1.00. Alternatively, if a price increase of 20 percent leads to a
20 percent decline in ticket sales, the elasticity is 20/20 or 1.00.
(b) The price increase is not a good idea. Total revenues have fallen from $2,500,000
(250,000)(10) to $2,400,000 (200,000)(12). Anytime elasticity is greater than one,
an increase in prices will result in a drop in total revenue.