Econ 2447 Sports Economics Final Exam Questions & answers | 2022 latest update

Final exam T. Miceli Spring 2017 Multiple choice. Write your answer in the space provided. (4 points each) _b_ 1. In major league baseball, a plot of team winning percentage against team salary reveals (a) No correlation. (b) A slight positive correlation. (c) A negative correlation. (d) None of the above. _a_ 2. The “Moneyball Hypothesis” contended that, prior to the early 2000’s, major league teams (a) Undervalued on-base percentage and overvalued home runs. (b) Undervalued power hitters. (c) Did not base salaries on performance at all. (d) Based salaries on longevity in the league. _d_ 3. Giving teams exclusive rights to innovative training or other management strategies would (a) Be like granting firms patent protection for inventions. (b) Harm the goal of maintaining competitive balance in the league. (c) Be very difficult to enforce. (d) All of the above. _d_ 4. Actual player salaries are generally below their marginal revenue products (MRPs) because (a) Bargaining between players and teams over salaries splits the surplus. (b) Teams need to expect a positive return from players to cover training costs. (c) In bidding for free agents, the winning team only has to bid the value of the player to the secondhighest bidder. (d) All of the above. _b 5. The principal-agent model in economics is concerned with (a) Safety of the work environment in employment relationships. (b) The nature of the contract between the employer and employee. (c) Providing equal pay for all workers. (d) None of the above. __a_ 6. Performance-based contracts in sports are (a) Aimed at giving players an incentive to exert effort. (b) Popular with players because they subject them to performance risk. (c) Not desired by team owners. (d) Prohibited in professional sports. __d_ 7. Long-term contracts with guaranteed salaries (a) Are not popular with team owners. (b) Counteract incentives for player effort. (c) Are popular with players because they protect them against performance risk. (d) All of the above. __c_ 8. Teams have an incentive to invest in player training (a) In a world of complete free agency. (b) Regardless of what the labor market is like for players who make the majors. (c) Only if players are tied to their original teams for a set number of years before free agency. (d) All of the above. This study source was downloaded by from CourseH on :47:38 GMT -06:00 _a_ 9. A limited reserve system, as currently exists in major league baseball, (a) Gives teams an incentive to finance minor league teams as a training ground for players. (b) Reflects a weak players’ union. (c) Is not in the interest of players as a group. (d) None of the above. _d_ 10. The screening function of the minor leagues (a) Removes players of inferior ability from the pool of potential major leaguers. (b) Increases the average quality of players in the league. (c) Has the paradoxical effect of eliminating extreme performances by the best players. (d) All of the above. _b_ 11. College athletics, especially at the Division I level, (a) Primarily serves an entertainment function. (b) Provides entertainment but also serves as a training ground for some professional sports. (c) Is not highly regulated by the NCAA. (d) Allows star players to be paid salaries. _c_ 12. According to the analysis we did in class, if athletic scholarships were eliminated and college athletes were instead paid their MRPs, the primary losers would be (a) The athletes with high MRPs. (b) Non-athletes. (c) Athletes whose sports are not sources of revenue for the school. (d) No one. _a_ 13. Anti-trust policy in general is aimed at (a) Preventing welfare losses due to monopoly and other collusive business practices. (b) Encouraging innovation. (c) Ensuring that firms pay their workers fair compensation. (d) None of the above. _d_14. The exemption from anti-trust laws for professional sports (a) Has generally been upheld by U.S. courts. (b) May be justifiable because of the benefits that arise from cooperation among teams within a professional league. (c) Is based on application of the “Rule of Reason,” which balances the costs and benefits of collusive behavior. (d) All of the above. _d_ 15. The supposed benefits of public financing of professional sports arenas comes from (a) Creation of jobs. (b) Generation of tax revenue. (c) Pride to the local area from having a professional team. (d) All of the above. True/False. Write T or F in the space provided. (4 points each) _F_16. The “team production problem” is not a source of risk for players in professional sports. _T_17. The shifting of performance risk from players to owners in the form of guaranteed salaries is economically desirable because players are risk averse and owners are risk neutral. _F_18. The trend toward affiliation of minor league teams with major league teams in professional baseball in the early to mid- twentieth century had nothing to do with the training function of the minor leagues. This study source was downloaded by from CourseH on :47:38 GMT -06:00 _T_19. The existing limited reserve system in major league baseball is essentially a kind of collective loan contract, whereby players who make the majors “pay back” their own training costs as well as the costs of those who don’t make it. _T_20. The benefits from a new professional sports arena may be more than offset by the substitution of spending away from other local entertainment options. 21. Short answer. Write your answers in the spaces provided. An expansion team in a professional sports league is considering locating in one of two cities, A or B. The team estimates that its profit in the two cities, excluding the cost of building a stadium, will be: Profit in city A = $210 million Profit in city B = $200 million The cost of the stadium in either city will be $100 million, but the team expects the winning city to subsidize at least some of this cost. Finally, suppose that each city expects the team to generate the following additional economic activity: Economic activity in city A = $60 Economic activity in city B = $75 (a) Accounting for all of the effects, in which city is it efficient for the team to locate? (5) A: 210 + 60 – 100 = 170 B: 200 +75 – 100 = 175 * (b) What is the least amount that the “efficient city” from (a) would have to bid as a subsidy for the cost of the stadium to attract the team? (5) At least 10 million (the difference in team profits in A versus B) (c) What is the least amount the efficient city would have to bid to outbid the other city? (5) At least $60 million (the amount that A would benefit from having the team) (d) Given your answer to (c), will the efficient city end up receiving a net gain? If so, how much? (5) Yes, B will get the team, and its net gain will be $75 − $60 = $15, assuming that it bids the minimum amount in (c)