UNIVERSITY OF WATERLOO

Department of Economics
ECON 254 Economics of Sport
Problem Set #3

Problem 1. Draw the Lorenz curve for the PGA given the following data:

Lowest Quintile (lowest 20%) generates 6% of income.

Second Lowest Quintile generates 10% of income.
Middle Quintile generates 14% of income.
Second Highest Quintile generates 28% of income.
Highest Quintile generates 42% of income.

Problem 2. Draw a diagram representing a bilateral monopoly where LU = LM.

Where is the bargaining region on your diagram?

Problem 3. If the media is a source of information (and more information is

beneficial to avoiding strikes / lockouts) then why would both parties agree to
negotiate under the conditions of a media blackout?

Problem 4. Use the all-or-nothing demand curve to explain why the IOC is not
likely to accept a bid to host only the womens gymnastics events for the 2020
Summer Olympics by Halifax.

Problem 5. Suppose that the City of Kitchener is planning a bid to host the 2026
Olympics and has estimated the following benefits:

The benefits in year 1 are $2 billion, year 2 are $1 billion, year 3 only $500 million
and after the third year there are no further benefits. What is the maximum bid
(to the nearest dollar) the city should make for the games if they believe the
estimated benefits are accurate and the interest rate is stable at 5% over the
three years?

Problem 6. Suppose that Gerry works for the Saskatchewan Roughriders (in
Regina) and makes $75,000 per year. If Gerry has a MPC of 80% and he only
spends in Regina how much does he add to the Regina economy?
Problem 7. Suppose that Dean works for the Saskatchewan Roughriders (in
Regina) and makes $75,000 per year. If Dean has a MPC of 90% and he only does
half of his spending in Regina how much does he add to the Regina economy?