Supply, Demand, and Consumer Theory

Chapter 1: It's Just Supply and Demand

• Supply refers to the willingness and ability to produce and sell a good or service at various quantities and prices.
• Demand refers to the willingness and ability to purchase a good or service at various quantities and prices
• Consumer Theory studies how individuals make spending decisions based on their preferences and budget constraints.
• Willingness to Pay is the maximum price a consumer is willing to pay for a product.
• The Marshallian cross is a standard supply and demand model.
• A demand curve indicates the quantity of a good demanded at different prices.
• Substitution Effect explains that when a good's price increases, consumers seek more attractive alternatives, while a price decrease makes the good more appealing.
• Income effect explains that a decrease in a good's price increases the purchasing power, while an increase decreases it.
• Law of demand states that as the price of a good increases, the quantity demanded decreases, assuming all other factors remain constant.
• The market period is a timeframe when firms cannot adjust supply, thus prices are determined entirely by demand.
• The short-run period is a timeframe when firms can adjust the supply of a good in response to price changes.
• Quantity supplied refers to the amount producers are willing to supply at each price, assuming all other factors remain constant, represented by movements along the supply curve.
• Quantity demanded refers to the amount consumers demand at each price, assuming all other factors remain constant, represented by movements along the demand curve.
• Price ceiling refers to a mandated price above which transactions are prohibited, often established by the government.
• Deductive reasoning is an approach that begins with general principles to derive a theory.
• Inductive reasoning is an approach where one identifies patterns in data to create a theory.

Lecture Notes

• Someone is willing to pay more for a unit, product, or service they care for than someone who doesn't really care for the product.
• Big hockey fans would pay $300 for a game ticket.
  • As the price goes down more people will pay the price for the ticket even if they are not massive hockey fans
  • When tickets are free consumers will accept it but those who won't truly don't care for the sport.
• The number of seats fixed in the arena will ensure that supply wont change

What Determines Ticket Prices in Professional Sports?

• The Marshallian Method is one way
• Alfred Marshall said before numbers, it will still need models to solve complex mathematical problems.
• Most of what is done in economics can be traced back to supply and demand
• Deductive Reasoning moves from the general to the specific

1.1: In Sports, Perception and Reality Don't Always Match

• Why study sports economics?
• The best "lab" for studying economic principles
• Sports is a setting where the industry experts know the name, face, and life history of every production worker and supervisor
• People love sports meaning The commissioner needs to figure out how to price tickets so that ordinary people can go to the games
• Sports were originally for the leisure class, primarily wealthy white males
• Today, more than 4 million boys play high school sports each year and more than 3 million girls do the same
• Sports are played and watched around the world by both men and women
• 45% of NFL fans are women, 30% of MLB, NBA, NHL, and NASCAR
• Sports are very important in that they are the only business that has a full section in most newspapers, dedicated to their day-to-day operations
• People should not be fooled by the hype of the sport and should also know economics, especially supply and demand

Supply and demand in sports

• Supply and demand play into talent selection
• Supply of a particular player may be less than demand, meaning the price of where the player is selected in the draft will increase
• When a players salary increases ticket prices increases

1.2: The Marshallian Method

Marshall's approach to economics

• Use mathematics as a shorthand language, rather than as an engine of inquiry
• Keep it till you have it done
• Translate into English
• Then illustrate by examples that are important in real life

1.3: Marshall and the Demand Curve

• Use mathematic as a shorthand language until you are done
• Demand Curve equation
  • P = a₀-a₁ x Qd
    • P = price of good (ticket, baseball card, jersey)
    • Qd = quantity demanded of a good
    • a₀= y intercept
    • a₁ = slope coefficient
  • Translate the math into words
    • a1 has a sign, meaning that the price and demand move in opposite directions
    • When a ticket, becomes more expensive people have an incentive to buy more of other goods, which is called the substitution effect
      • (the tendency consumers have to substitute other goods for the tickets as the price goes up)
    • As ticket prices fall consumers have an incentive to substitute ticket purchases for the purchases of other goods and services

The Demand Curve

• Income effect is when a ticket becomes less expensive and purchasing power goes up
• Both of these affect the law of demand
• The law of demand tells us that as price increases, quantity demanded will decrease
• The Y intercept reveals the value of the dependent variable when the independent variable is zero
• P = $50 - .002xQd
  • At P=$25, demand would be 12,500 tickets
  • P = 75 - .002xQd demand would be 25,000 tickets

Change in Demand

• The curve tells the relationship between the price and demand, holding all else constant
• If anything other than price changes, you have to represent this by moving the entire curve
• Things that would cause an increase in demand:
  • increase in the size of the market where the team played
  • increase in the per capita income in the market
  • move to a newer stadium
  • increase in the capacity of the stadium
  • improvment in the quality of stadium

1.4 Just a Matter of Time

"Market"Period

• The time period where supply is fixed, during this line, the prices are determined entirely by demand
• P= b₀+ b₁ x Qs
• P=price of a good
• Q = quantity demanded of a good
• b₀= y intercept
• b₁= slope coefficient

Law of Supply

• Higher prices encourage firms to produce more of a product, while lower prices cause firms to produce less.

1.5: The Marshallian Cross

• It is an interaction of relative demand and supply.

Example: The market for time Tebow jerseys:

• Time Tebow leads the Broncos to the playoffs, while Reebok is the supplier of jerseys.
• After that season, Tebow his trade into the Jets, and Nike take over the Jersey making rights
• When Nike was no longer alone in the market the supply of Jersey's increases which lead to the quantity exceeds the quantity demanded.

1.6: What determines ticket prices?

• Once Can assume that stadiums and seating our fix so any change to the price of tickets will be the result of ships in demand.
• If ticket prices are going up, it's not because of player salaries, but rather change in demand
• All your meal charity in sports definitely leads to greater demand and that leads to the following progression of events.
  • Greater demand for sporting events
  • Increase ticket price
  • With the revenue earned with higher prices leads to more demand for professional athletes (the Marshallian cross, as we will detail also applies to labor markets) and higher demand for players leading to higher salaries.

1.7: "The Decision" teaches us how to Market Impediments have unintended:

• It gives the impact of maximum wage in the labor market For national Basketball players.
• Year in NBA 2015. The highest NBA year was in 2016-17

1.8: What is the "Right price"?

• There are Lebron wages correct that gives Societal perspective and market perspective.

1.10: Deductive versus Inductive Reasoning

• Is discipline employs both deductive and inductive reasoning which understand how the world works adapting methods based on ability available data and context.
• Economy is traditional to employee deductive reasoning

Chapter 2:

• It gives a market size and with two Approach is to the same question give by definitions
  • Marginal revenue the amount of revenue are firm gains from additional sale and also the slope of the total revenue cover

The Law Of Diminishing Returns

• As affirm hires more workers, holding all else constant the amount of output from each additional worker a firm adds we'll eventually decline.
• Marginal cost give you for each additional unit
• R Square it indicates a co-efficient of determination, or the percentage of variation in the defendants variable.
• Key points it indicates the market size dictate outcomes in sports.

2.1 from the law of demand to team revenue the deductive approach

• Indicated with mathematics which is used together to come up with certain mathematical situation.
  • Make predictive statements about the world through supply/ demand fundamentals combined with mathematics assumptions
  • This approach suggest that teens may be able to buy wins ("Pay to win").

Inductive approach

• It gives an imprecil Approach.

2.2 Debating Team Costs

• I gives a marginal cost when the cause of one more fan is zero to the team.

2.3: Why do the Yankees dominate

• Because the Yankees play in a thicker market is the team's to the right
• This means the Yankees are able to maximize profits are a points where higher prices for the tires and revenue against against the Tigers.
• The more I will the real I just to see the basics of regression analysis but does not provide understanding about the world..

RegressionAnalysis: Table 2.14

-Wins, points scored, and ponts allowed

• Gives information that Univariate model said

28: A simple guide to evaluating empirical models

• Having a sound theory is important there is a number of issues to consider.

Week 3 Questions

• Some of the other actors inside from market size that can determine team performance,
• Some things you should consider is how much the tema onwer cares about their team and players.
• It gave the fallowing statement that' The detective the autical approach its less convence more" to understand how the world works adapting methods based on ability available data and context. Economy is traditional to employee deductive reasoning
• Consider fallowing regression questions for winning points percentage in the NHL

Chapter 3:

• It defines all the different types of utility.
• Do team profit maximize from classic utility to revenue and profits
• And elasticity it addresses the subject of profit Maximization.

3.1 Revenues and profits of MajorProfessional Team Sports

• Individuals are presumed to meet decision should that each individual's happened will be maximized some terms are more team like to come the team with the purchase of their own sports team.
• and more importantly you need to consider The sunk cost and all the others associated with making those deals

Explore supply and demand, consumer theory, and willingness to pay. Understand the Marshallian cross and demand curves. Learn about the Substitution and Income Effects, as well as the Law of Demand.