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Homework 1 (solutions) (2)

# Homework 1 (solutions) (2) - Homework 1(solutions 1 The...

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Homework 1 (solutions) 1. The Washington Nationals sign Stephen Strasburg (who is a phenom and amazingly popular) and quickly promote him to starting pitcher a. Graphically show what is likely to happen to ticket prices of games? b. Why? Signing Strasburg will increase the demand, so you would expect ticket prices to increase c. After 5 years of great pitching, the Nationals resign Stephen Strasburg to a long term contract. What is likely to happen to ticket prices? Why? Resigning Strasburg maintains status quo and does not affect demand, so prices should not change 2. Use supply and demand to show graphically why teams that win championships typically raise their ticket prices the next season. 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 product. An increase in demand shifts the demand curve to the right leading to an increase in equilibrium prices. 3. Suppose the market demand for ticket to see UTA basketball games is and the supply is . a. What is the equilibrium price of a ticket to the game? b. What would happen to the market for tickets if the university set a price ceiling on tickets of \$10 and if UTA enforced strict anti-scalping laws? c. Show the result on a graph. d. What would happen to you to your answer in (b) if the price ceiling were \$30. e. Show the result on a graph. (a) Set Q d = Q s , so 40,000 - 1000 p = 20,000. Solving for p , p = 20. See Figure 2.1 below. (b) Since the equilibrium price is above the price ceiling, the price ceiling will be binding and the new price will become p = 10. Q d = 40,000 – 1000 p = 30,000. See Figure 2.1 below. (c) Since the equilibrium price is below the price ceiling, the price ceiling will not be binding. Thus, the price will stay p = 20. Q d = Q s = 20,000.

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4. UTA builds a new basketball arena, which is significantly bigger than an auditorium. Explain how this affects supply and demand. a. Show this effect graphically. A new stadium is bigger so the supply curve shifts to the right (the blue line). Going to a new stadium might also be novel that it can increase the demand as well (purple line). Depending on how they the demand and supply shift, you can have two different
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Homework 1 (solutions) (2) - Homework 1(solutions 1 The...

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