EXAM 3 STADIUM FINANCE and NCAA QUESTIONS AND ANSWERS

Why might the Simple Multiplier be an inaccurate measure of the total amount of money circulating in an economy from a given direct investment into the economy? - Answer-The Simple Multiplier assumes a closed economy. In an open economy there would likely be leakages out of the 'local' economy. If the marginal propensity to consume is 0.6 and a direct investment of $1,000,000 is made what would be the quantity of money flowing through the economy according to the Simple Multiplier? - Answer-Total Benefit = (1/1-0.6) * $1,000,000 = $2,500,000 If the marginal propensity to save is 0.3 and a direct investment of $1,000,000 is made what would be the quantity of money flowing through the economy according to the Simple Multiplier? Remember MPC + MPS = 1, so MPS = 1 - MPC. - Answer-Total Benefit = (1/0.3) * $1,000,000 = $3,333,333 Why is the multiplier effect different for small cities relative to large cities? - Answer-The smaller the city the more leakages you will have in the local economy. For the smaller city, the multiplier is likely to be smaller. When there is a negative externality, is there an under or over allocation of the good? - Answer-With a negative externality there is an over allocation of the good. Taking into account social costs (supply curve) equilibrium will occur at a lower output. When there is a positive externality, is there an under or over allocation of the good? - Answer-With a positive externality there is an under allocation of the good. Taking into account social demand equilibrium will occur at a higher output. What makes a good a Public Good? - Answer-Public Good is a good that is non-rival and non-excludable.What are some sports specific examples of a negative externality? - Answer-Traffic on game night, increased crime around the arena, decreased property values around the stadium (sometimes property values go up, like near Fenway Park in Boston, which would then be a positive externality). What are some sports specific examples of a positive externality? - Answer-Feeling of 'well-being' resulting from having the in your city, increased foot traffic (and subsequently revenue) to businesses around the arena. Where does our code of Olympic Amateurism stem from? - Answer-It stems from the British Rowing Association which declared that only "amateurs" can compete in Intercollegiate competitions and then goes on to define an "amateur" as one who had never been "by trade or employment for wages a mechanic, artisan or laborer or engaged in any menial duty." (Sports in the Western World, pg. 125)