Question

1) An earthquake centered in New Hampshire severely damages Fenway Park, forcing the Red Sox to have to build a new stadium. The team decides to construct its new facility in the nearby town of Quincy rather than in downtown Boston. Use the appropriate economic model to explain why it does so.

2) Referring to question #1, a politician in Massachusetts claims that the state must subsidize the construction of a new stadium because of the "positive externalities" that the team generates. Use the appropriate economic model to explain his reasoning.

Answer 1

Answer (1): After the earthquake had damaged the Fenway Park in New Hampshire, the concerned authorities now had the task of building a new stadium. The primary concern here lies the cost related to the building of the new Stadium. If the authorities have decided to build the new stadium in the nearby town of Quincy and not in the town of Boston, this means that as per the law of externalities, the cost of building the new stadium in Quincy was costing much lesser in comparison to building the same in New Hampshire. When the total cost structure of building a new stadium is taken up, the total economic considerations have to be administered, whereby, the authorities have to take a call on the variance of the cost benefit that they would incur in choosing one among the alternatives.

Answer (2): When the stadium is constructed in Quincy, it leads to a huge development of the area in which it is built. This is because, when a stadium is constructed, the road leading to the stadium is highly developed. Moreover, a new stadium gives employment to workers of the local area. It also gives employment to the vendors who supply outside the stadium premises. There is huge boost to the transport to and fro leading to the stadium. All these factors lead to a big profit for the State’s economy. Therefore, the politician has requested that in order to get a long term financial benefit from the building, the State should subsidize the construction of the new stadium in their vicinity.