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Friday, September 15, 2006

Microeconomics quiz of the week

This from the WSJ microeconomics weekly (and something about which I had wanted to talk about but didn't have the time this week):
"At Notre Dame, where the college-football tradition of Knute Rockne, the Four Horsemen and the Gipper has a mythic aura, alumni and fans have long filled the stadium and packed hotels within 50 miles on Saturday game days. But the frenzy for home games this year is extreme even by Notre Dame's manic standards. Ticket requests for home games hit unprecedented levels. Prices online for everything from pregame parties to game tickets and rental houses have soared: A mere parking pass for the Penn State game recently sold on eBay for $500. Another eBay buyer spent $3,200 for two $59 tickets to the same game....

Indeed, rates for many of the 4,015 hotel rooms in the South Bend area are skyrocketing. Two weeks before the start of the season, the Comfort Suites here was asking $245 a night, with a two-night minimum, for the Penn State weekend. That's up from $109 a night on non-football weekends. For the Sept. 16 game against the University of Michigan, the South Bend Marriott is charging $649 a night for a double room. That's more than the price of a room at the Waldorf-Astoria Hotel in New York. The Marriott's regular weekend price is $149 a night."

QUESTIONS:
1.) Is the supply of South Bend hotel rooms price inelastic? Is the supply of rooms for rent (i.e., people renting their homes to football fans) price inelastic?

2.) How does the demand for this season's Notre Dame football tickets depend on Notre Dame's past records?

3.) How does the wealth of Notre Dame football fans affect the demand for Notre Dame tickets?

4.) "'It is an act of moral abdication' for businesses to pretend they have no choice but to charge as much as they can based on supply and demand, says Joe Holt, a former Jesuit priest who teaches ethics in Notre Dame's executive MBA program. Mr. Holt intends to use the hotel rates as a case study this fall for a class on business and values integration. 'It is the economic version of 'The devil made me do it,' he says." Is it a "moral abdication" for a hotel to increase its room rate from its regular $150 rate to a $500 football weekend rate?

5.) When the demand for Notre Dame tickets is great, consider two options that the University can use to allocate tickets: (1) conduct a lottery to parcel out the 30,000 seats available to contributors, former athletes and parents in the 80,000-seat stadium; or (2) raise ticket prices until the market clears. Why does Notre Dame choose to hold a lottery? Discuss the fairness of a lottery and price increases.

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