Economics of sports the 5th edition leeds test bank

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Chapter 6 1. In the 1950s only a handful of teams played in municipal stadiums. Now, very few do not. Why? Answer:

The 1950s brought a change in the relationship between teams and cities. With the move of the Dodgers to Los Angeles, cities learned that even successful, profitable teams could leave. This allowed teams to make greater demands on cities in return for moving—or not moving.

2. (a) Why are ballparks built in the 1960s and 1970s shaped the way they are? (b) A friend complains, “Why don’t they build ballparks where they used to, right downtown.”

How do you respond?

Answers: (a) The ideal baseball stadium and the ideal football stadium have very different shapes.

The former should have a large number of seats arranged in a horseshoe around home plate, while the latter should have a large number of seats arranged along each side. The circular, “cookie-cutter” ballparks of this era were an attempt to reach an architectural compromise. (b) First, even the old ballparks were generally not built downtown. They, too, were built on the outskirts of the city. Cities simply expanded, taking downtown around the ballparks. Should one wish to indulge this mistaken nostalgia, building downtown comes at a cost. Property values rise as one moves closer to the center of town. Building a new, space-intensive facility there will be much more expensive to a city than building at the outskirts of town.

3. New baseball stadiums are smaller than they used to be because (a) baseball is less popular than it used to be. (b) baseball teams no longer share ballparks with football teams. (c) cities are becoming more careful about spending their money. (d) technological advances allow teams to seat more fans in a smaller space.

Answer:

(b) From the 1960s through the 1980s, most cities built multipurpose facilities designed to accommodate both baseball and football. Largely because they play far fewer games per season, football teams attract many more fans per game than do baseball teams. The multi-purpose stadiums had to balance the desires of the two. When teams began building baseball- and football-only facilities, they were able to make the football stadiums larger and the baseball stadiums smaller.

4. The Green Bay Packers could threaten to leave the city of Green Bay because (a) they are privately owned. (b) they are a public corporation. (c) they are a municipal corporation. (d) None of the above.

Answer:

(b) They are a public corporation that is not owned locally. As such they are free to move.

5. Walter O’Malley is infamous for (a) dressing like Al Davis. (b) moving the Dodgers from Brooklyn to Los Angeles. (c) mistreating his players. (d) None of the above.

Answer:

(b) Moving the Dodgers from Brooklyn to Los Angeles.

6. Teams can persuade host cities to build them new stadiums because (a) players are great at arguing for new stadiums. (b) they can always threaten to re-locate the team. (c) All of the above. (d) None of the above.

Answer:

(b) Teams confront cities with an all-or-nothing choice.

7. Benefits that spill-over to third parties not directly involved in the transaction are called: a. Sunk costs. b. Negative externalities. c. Public goods. d. Positive externalities.

Answer: d. Positive externalities occur when parties outside of the immediate parties involved in a transaction benefit from the fact that transaction took-place. A good example of positive externalities are the benefits that spill-over to society as a whole from individuals making the private, self-interested choice to pursue a college degree.

8. If the MPC is 0.5, the simple multiplier (ignoring leakages) is: a. 0.5 b. 10 c. 2 d. 5 Answer: c. The simple multiplier is given by the formula: 1/1-MPC. In this case, that comes to 1/1-.5 = 1/.5 = 2.

9. A sports facility will cause a city’s net exports to rise if: a. It sells large amounts of merchandise at the facility. b. It broadcasts it games to a nationwide audience. c. Many fans from other towns now come to the city. d. None of the above.

Answer: c. For net exports to rise, the sports facility must bring in fans from out of the area; otherwise, money spent at the sports facility is simply money that would have been spent elsewhere in that community.

10. In Major League Baseball, after a new stadium is built, attendance tends to fall back to its original (i.e., “old” stadium level after approximately_______________years. a. 20. b. 5-8. c. 10 d. 2 Answer: c. 10 years.

11. The additional noise, congestion and crime that can come from a new sports facility coming-in to a downtown metro area represent a____________________for the residents of the neighborhood where the facility is located. a. Positive externality. b. Negative externality c. Profit boost. d. Free-market equilibrium outcome.

Answer: b. These aspects of a new sports facility in a neighborhood represent a negative spillover effect to its residents which the free-market does not account for.

12. With an MPC of .75, what would you expect to be the total impact on spending/incomes from the construction of a $10 million facility in a city? a. $40 million. b. $7.5 million. c. $10 million. d. Zero.

Answer: a. Total impact on spending/income is given by the change in initial spending multiplied by the multiplier. In this case, the multiplier is 1/1-MPC = 1/1-.75 =4 multiplied by the initial change in spending of $10 million = $40 million.

13. When there are positive externalities associated with a good or service, private markets tend to_____________________________them. a. Overallocate. b. Underallocate. c. Efficiently allocate. d. Completely ignore.

Answer: b. Goods producing positive externalities tend to be underallocated by private market because goods are allocated by equating marginal benefit with marginal private cost in private markets, rather than by equating marginal benefit with the lower marginal social cost that results from the effect of a positive externality.

14. Economic rent means: Answer: The financial return provided to a producer or input in excess of the opportunity costs of offering-up that output or input in the marketplace.

15. What does it mean when economists say public goods are non-excludable and non-rivalrous in consumption.

Answer: Public goods are non-excludable in that sense that people cannot be excluded from consuming public goods in they are unwilling or unable to pay for them, Non-rivalrous means that an individual’s consumption of a public good does not preclude other individual’s consumption of such goods. National defense and uncongested freeways are nice example of public goods.

16. Public goods are ___________________from a free-market system in which firms act out of the profit motive.

Answer: Public goods are underallocated in a free-market system (in which firms act out of the profit motive) because of the free-rider problem that results from the non-excludability component of public goods.

17. From a purely economic standpoint, which condition would you expect to encourage a sports team to win more games?

Answer: If the existence of a new facility shifts the marginal revenue of a win to the right (increase), the team’s optimal number of wins (from a marginal revenue-marginal cost standpoint) increases.

18. True or false: Positive consumption externalities increase the demand and socially-optimal quantity consumed of a product. a. True. b. False.

Answer: a (true). Such “spillover-effects” make the demand for such a product (like a new baseball stadium) higher than it would be in the absence of any such external effect.

19. Why is comparing “capacity utilization rates” (that is the percentage of seats sold, on average in a season) deceptive when comparing major league baseball teams across time and other teams?

Answer: In the “neo-classical” period of modern baseball stadiums, beginning in the early 1990s, the stadiums tend to be smaller than their predecessor’s; thus, average attendance of 30,000 per game in a stadium with 40,000 seats will exhibit higher capacity utilization than the same average attendance in a stadium with 50,000 seats.

20. True or false: The net economic impact of hosting mega-events such as the Olympics or Super Bowl tends to be relatively modest.

Answer: a (true). Economists have consistently found that the net overall impact of mega-events is, at best, minimal.

21. True or false: Baseball stadia built in the early years of the 1900s were usually built in the center of town. a. True. b. False.

Answer: b (false). Such baseball stadia, Such as Shibe Park in Philadelphia and Yankee Stadium in Bronx, New York, were built in areas considered far from the city center at the time to take advantage of lower real estate/construction costs.

22. If average annual household incomes increase by $5,000 and imports increase, on average by $400, what is the marginal propensity to import? a. .20 b. .08 c. $400 d. There is not enough information to determine.

Answer: b. The marginal propensity to import is calculated as the change in imports dividing by the change in income, in this case, $400/$5,000 = .08 (8%).

23. In which sport do attendance levels fall back to previous levels the soonest after a new facility is built? a. Hockey. b. Baseball. c. Basketball. d. None of the above.

Answer: a. The “honeymoon effect” is only 5-8 years for a new hockey arena.

24. Explain what sports economists mean when they speak of the crowding-out effect of a new sports facility.

Answer: A new sports facility often simply represents spending that displaces other spending; that is, it crowds-out spending that would have occurred in the absence of the new sports facility being built rather than representing additional (new) spending.

25. Advocated of revisions to $500 million renovations to Wrigley Field in Chicago argue that the renovations will generate over $18 million in additional spending per year. Why will the true net economic impact likely be far less than $18 million per year?

Answer: The true net economic is expected to be much less than the $18 million per year figure because the spending resulting from the renovations will mostly involve substitution spending (that is, Chicagoans will simply shift their spending from one leisure activity to other, mitigating the overall net economic impact of the renovations).

26. What do cities hope to gain by attracting franchises?

Answer:

Cities hope to increase the level of economic activity in many ways. They hope to generate revenue from the team through the lease on the stadium. More importantly, they hope to generate direct benefits by increasing expenditure by both residents and non-residents, thereby increasing incomes and employment. These increases will be magnified by the multiplier effect in which the additional income of residents generates additional expenditure, which increases income of other residents, and so on. The greater exposure on television may also raise the profile of the town among potential employers and tourists. Finally, the franchise may provide the city with a sense of identity.

27. Why is the multiplier effect for the local economy likely to be greater for the Los Angeles Lakers than the Sacramento Kings even though both are NBA teams? (a) The L.A. Lakers have historically been more successful on the basketball court than the Kings and demand for tickets will be higher if a team plays well. (b) Because L.A. is a larger metropolitan area, the Lakers will likely have to share more in local revenues with the league than the Kings. (c) The Lakers sell out more games than the Kings meaning that ticket sales for the Lakers are mostly limited to local season ticket holders. (d) The Lakers’ players are much more likely to live the in the city in which they play than Sacramento’s players.

Answer:

(d) The money paid to the Lakers’ players is much more likely to recirculate in the local economy than money paid to Kings’ players

28. A city may make sizable operating revenues from leasing a venue to a team but still subsidize its team because (a) the city understates the multiplier effect. (b) the owner declares Subchapter S status for the franchise. (c) the city ignores opportunity costs. (d) the owner is caught in a prisoner’s dilemma situation.

Answer:

(c) Even if a city makes money on a facility that it leases to a team, it will still have subsidized the team if it could have generated greater income through alternative projects.

29. Most economists view tax revenues raised through state lotteries as (a) progressive since rich people can afford to buy more tickets. (b) the best way to raise funds because no one has to buy tickets. (c) a poor idea since lottery tickets are inferior goods. (d) regressive since poor people spend a greater fraction of their income on tickets.

Answer:

(d) A tax (or other fund-raising mechanism) is progressive if the ratio of payment to income rises as a citizen’s income rises and is regressive if the ratio falls. Research has shown that poor and ill-educated people spend a far greater proportion of their income on lotteries than wealthy, highly educated people.

30. Logrolling can improve upon majority rule because (a) it protects minority rights. (b) it imposes the appropriate tax. (c) it offsets the winner’s curse. (d) it allows for the intensity of desires.

Answer:

31.

(d) Logrolling—or vote-trading—allows voters or their representatives to pass legislation that they really want in return for voting for legislation that they mildly oppose. Simple majority rule, in which people vote on the basis of whether specific legislation makes them better or worse off, fails to account for how much better or worse off the voter becomes.

What are the direct benefits from hosting a professional sports team?

Answer:

Direct benefits are defined as the new spending that a team generates in the area. This may occur in two ways. The team may cause residents to spend more of their existing income thereby raising the average propensity to consume and secondly a team may raise the level of net exports in an area. Regional exports increase if the team causes people from the surrounding communities to spend more in the region. For example, if Minnesota Vikings home games draw fans from North Dakota and Iowa (who stay in hotels and do a bit of shopping in the area) then the Vikings have brought money into the area.

32. What are the indirect benefits from hosting a professional sports team?

Answer:

Indirect benefits are positive externalities that a professional team generates such as a sense of community and a sense of civic pride that comes from living in a major league city.

33. A small town is likely to have a smaller multiplier effect because (a) so much expenditure leaks out to surrounding towns. (b) professional athletes are less likely to want to live there. (c) the direct benefits of a professional franchise are smaller. (d) fewer franchises locate in small towns than in large cities.

Answer:

(a) A small town is unlikely to have a broad enough economic base for people to spend their added income in town. If they spend their income out of town, then it is likely to raise the incomes of people in other towns, causing ripple effects to occur in other towns and reducing the additional income and spending that make up the multiplier effect. (b) is also potentially correct. If few athletes live in the local area, then money spent on their salaries is unlikely to be spent in the local economy.