5 Sports Economics Qestions

Problem Set 2

Due October 25

1. Using the two team competitive balance model with a small market team and a large market team, show how P∗,WP ∗S ,WP ∗L, and payroll would be affected by a tax on the large market team that takes revenue for additional wins beyond 50% and gives the revenue to the small market team.

2. Using the Coase theorem explain why do many economists believe that free agency has not affected competitive balance?

3. Give at least two examples of positive and negative externalities to a new NBA arena. Why are the negative externalities associated with the newly opened Barclays Centre in Brooklyn likely to be greater than the negative externalities associated with the Staples Center in Los Angeles, which opened in 1999?

4. If the marginal propensity to consume in a municipality is 0.8, what is the value of the simple multiplier? If a new stadium that adds $30 million in new consumption expendi- tures is built, what is the impact on the economy based on this multiplier? Suppose the Marginal Propensity to Import is 0.3, what happens to the multiplier and to the impact on the economy?

5. Suppose the International Olympic Committee announced that it would hold all of its Summer Games in Athens and all of its Winters Games in Sapporo. What is the likely impact on the monopoly power of the IOC, the IOCs ability to exploit an all-or-nothing demand curve, and the winners curse?