Question

You have been hired as an economic forecaster for the Indianapolis Colts. Your boss has asked you to consider the effect of the following event on both the equilibrium price and number of ticket sales (quantity) for Colts tickets. Use the concepts of supply and demand to explain the following situation. A proper answer will have an explanation identifying which factors have changed and how they impact either the supply curve, demand curve, or both.

Be sure to illustrate each effect with an appropriately drawn and labelled figure. The labels should include the axes, each curve, arrows to depict the transition from before the event to after the event, and all equilibria before and after the event.

1. Your star QB decides to retire suddenly during the third week of the preseason. (Should be 2 effects)

2. The price of tickets to the Indiana Pacers decreases this year. (Assume the two sports play at the same time)

3. Vice President Mike Pence is in attendance of the game, necessitating the installation of metal detectors at every entrance. (There might be two effects. Be careful when considering your own political preferences; think about the political preferences of the crowd at a Colts game.)

4. The Colts self-finance and build a new stadium.

5. Due to new tax legislation, the NFL loses their tax-exempt status. Furthermore, the same bill reverses recent tax cuts and increase the marginal tax rate for all households, decreasing total incomes. (There are two effects)

*** Please draw graphs and explain, thanks!

Answer 1

1) Due to the announcement of the retirement the initial demand for the tickets will be more while the supply will be less inorder to increase the price as shown. However, after the QB not playing the game, the fans would not be interested and the demand might reduce later.

2) The law of demand says, that with the lower price of the subsitude goods, the demand of the good in question reduces. Hence the demand for Colts will reduce with lower ticket price of pacers. In the following figure: 3) The presence of a political figure makes the game important, hence while the price of tickets increase so will the demand and supply. 4) With the new stadium the Colts will increase the supply of tickets so that they are able to fill the new stadium. Hence the demand remaining constant the supply increases. 5) The lower income will shift the demand curve left as the households won't be able to buy the tickets. Also, due to losig the tax exemption scheme the Colts will increase the supply of tickets which would increase the price.