PROBLEM SET 3
1. Describe the externalities associated with a football stadium compared with an amusement park. Which would have greater positive externalities? Which would have greater negative externalities?
2. If you had a choice between your city’s hosting either a sports franchise or a World Cup, which would be more beneficial to your city? Why?
3. 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. While football and baseball teams have gone from multipurpose to separate facilities, basketball and hockey continue to share arenas. Why?
5. Standard economic theory is based on the assumption that people behave rationally. The winner’s curse implies that people behave irrationally by paying more for an asset than it is worth. Can we reconcile the winner’s curse with rational behavior?
6. Suppose the International Olympic Committee announced that it would hold all of its Summer Games in Athens, Greece, and all of its Winter Games in Montreal, Canada. What is the likely impact on the monopoly power of the IOC, the IOC’s ability to exploit and all-or-nothing demand curve, and the winner’s curse?
7. What is the difference between general and specific human capital?
8. Suppose that the market demand for baseball players is perfectly inelastic (vertical) at 750 players. If the market supply increases due to an increase in the number of available international players, use a graph to show how wages will change as aresult.
9. Explain and show using a graph why, at any given wage, a monopoly firm will hire less labor than the total employment if the industry were competitive.
10. Use the supply and demand model to explain why top athletes are paid less than top celebrities.
11. Show how the decision to take performance-enhancing drugs is like a Prisoner’s Dilemma.
12. Under what circumstances would an owner be able to practice employer discrimination over a long period of time?
13. Explain why sponsors who discriminate will likely experience lower profits for doing so.
14. Use what you know about the prisoner’s dilemma to explain why the English Premier League teams such as Arsenal have so many foreign players even when, as a group, the Premier League teams agree that they want to limit the number of foreign-born players.
15. Show, using supply and demand for labor diagrams for Divisions I and III, the effect of a new rule allowing Division III schools to pay athletes a one-time bonus for enrolling at their schools.
16. What effect do the following have on a person’s decision to invest in athletic training versus academic training? In each case, explain the direction and likely significance of the effect.
- Risk of career-ending injury
- The probability of success in athletics
- An increase in the cost of college tuition
- An increase in the demand for professional sports
17. Use game theory to describe how an effort by two universities to recruit a top basketball player might result in both committing NCAA recruiting violations.
18. Use game theory to describe how an effort by two universities to recruit a top basketball player might result in both committing NCAA recruiting violations.