S. Klepper, Economics 73-100, Fall 2009

Solution to Mini-test 3

If the Jets sold out every prior game and there was a waiting list for tickets, then if they maintain the same price for tickets the total number of tickets sold must increase. With a constant price and greater quantity sold, total revenues from the sale of tickets would increase. If they do not increase ticket prices they will not necessarily sell out the new stadium. It depends on the number of additional tickets that people on the waiting list would buy—if that number is less than the additional capacity in the new stadium, then they will not sell out every game if prices remain the same. If the Jets increase ticket prices, they will not necessarily increase their total revenues. Even though capacity is greater and if they maintained ticket prices they would increase their total revenues, if the price elasticity is greater than one, then it is conceivable that a price increase could lead to a decline in total revenues. Alternatively, suppose prices are decreased. If prices were not changed, then total revenues would rise. If prices are decreased and the price elasticity of demand is greater than one, then total revenues would be even greater than they would have been if ticket prices had been maintained. Therefore, if the price elasticity of demand is greater than one and ticket prices are decreased, the total revenues taken in by the Jets from ticket sales would increase. The income elasticity of demand is not relevant for how buyers would respond to a price change. Therefore, if prices are increased and the income elasticity of demand is less than one, total expenditures on Jets tickets could fall or rise.

Based on this description, the answers to the individual questions are:

_____1. False—not necessarily

_____2. True

_____3. False—not necessarily

_____4. False

_____5. True