Economics of Social Issues 20th Edition Sharp Test Bank 1

Chapter 09 - The Economics of Professional Sports: What Is the Real Score?
Economics of Social Issues 20th

Edition by Sharp Register Grimes ISBN
0073523240 9780073523248
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Chapter 09
The Economics of Professional Sports: What Is the Real Score?
Multiple Choice Questions
1. Professional sports clubs differ from most other business firms in their
A. Organizational structure and relationship with employees
b. Location and emphasis on the competitive spirit
c. Ownership and profitability
d. Legal status as corporations and limited tax liability
e. Ability to operate in both the product and resource market
9-1
© 2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in
any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
2. In a product market,
a. Producers sell goods and services
b. Consumers buy goods and services
c. Final goods and services are exchanged
D. All of the above
e. None of the above
3. In a resource market,
a. Buyers and sellers exchange goods and services
b. Resourceful buyers find goods that are otherwise unavailable
C. Buyers and sellers exchange factors of production
d. Firm managers exchange production techniques and ideas
e. Workers exchange their labor for the firm's output
4. Firms that coordinate their actions to maximize joint profits are said to have formed a(n)
a. Monopsony
B. Cartel
c. Product market
d. Oligopoly
e. Economic treaty
9-2
5. Which of the following sports leagues can be considered a cartel?

a. The National Football League (NFL)
b. The National Hockey League (NHL)
c. The National Basketball Association (NBA)
d. (a) and (b)
E. All of the above
6. Which of the following is NOT necessary for a successful cartel? Members must
a. Produce most of the industry's output
b. Produce a homogeneous output
C. Produce heterogeneous outputs
d. Be able to divide the market
e. Have a way to prevent cheating
7. Which of the following best characterizes a cartel arrangement?

a. Open competition
b. Shared competition
c. Monopsony
D. Shared monopoly
e. Oligopoly
8. To maximize joint profits, a cartel will set the market price and output such that
a. Each firm's marginal revenue equals its marginal cost
B. The market's marginal revenue equals the market's marginal cost
c. Each firm's demand schedule is equal to the market marginal cost
d. The market's marginal revenue is equal to each firm's marginal cost
9. In a product market with a cartel, prices will be _____ and output will be _____ than in a
competitive market.
A. Higher; lower
b. Lower; higher
c. Higher; higher
d. Lower; lower
e. Both price and quantity will be the same
9-3
10. Which of the following statements is false?

a. Anti-trust laws make most cartels illegal in the U.S
B. Formation of a cartel ensures that each firm will earn greater profits than without a cartel
c. Cartels maximize joint profits not individual firm profits
d. Professional sports leagues insure the stability of teams by cooperating through cartel
arrangements
e. Cartels are difficult to maintain when cheating is possible
11. A resource market with only one buyer of a factor of production is called a(n)
a. Imperfect monopoly
b. Monopoly
c. Competitive market
D. Monopsony
e. Cartel
12. A monopsony is a market with only one

a. Buyer
b. Employer
c. Product
d. All of the above
E. a) and b)
13. The additional cost incurred as a result of hiring an additional worker is the firm's
a. Total cost of labor
B. Marginal cost of labor
c. Average cost of labor
d. Labor cost
e. Human capital cost of labor
14. Which of the following conditions can give rise to a monopsony employer?
a. Mobile workers with limited skills
b. Legal protection from anti-trust laws and a mobile workforce
C. Immobile workers with highly specialized skills
d. A cartel agreement that results in raising joint profits
e. A merger between two unrelated firms
9-4
15. Why does a monopsony's marginal cost of labor (MCL) curve lie above the market supply
of labor curve? Because the monopsony
A. Must raise the wage it pays all employees in order to attract and hire additional workers
b. Must pay higher wages to only the last workers hired in order to attract and hire additional
workers
c. Faces the market demand and marginal revenue curves
d. Must lower the wage it pays all employees in order to maintain profitability
e. Has such high labor costs relative to the supply of labor
16. If a firm's workers add $1,000 to the firm's receipts and total wages equal $500, then
monopsonistic profit equals
A. $500
b. $1,000
c. $1,500
d. $500,000
e. A number unable to be determined with the information given
17. Under which of the following conditions will a monopsony hire an additional worker?
When
a. MCL > MRP
B. MCL < MRP
c. MRP = D
d. MC = MR
e. D > S
18. To maximize profit, a monopsony will hire workers up to the point where
a. MC = MR
b. D = S
C. MCL = MRP
d. MCL = P
e. MR = P
9-5
19. A monopsony will hire ______ workers at a _____ wage than an employer in a
competitive labor market.
a. More; lower
b. More; higher
c. Fewer; higher
D. Fewer; lower
e. The same number of; higher
20. The difference between a worker's contribution to the firm's receipts and the wage is
A. Monopsony profit
b. Monopoly profit
c. Cartel profit
d. Economic profit
e. Marginal revenue profit
21. Which of the following releases professional athletes from some of the monopsony
powers of the sports leagues?
a. Player drafts
b. Long-term contracts
C. Free agency
d. Expanded playing seasons
e. Minimum wage laws
22. Why does the average professional baseball player earn more than the average doctor?
a. The baseball player has a lower MCL
b. The doctor has a higher MRP
C. The baseball player has a higher MRP
d. There are more professional baseball players than doctors
e. The demand for baseball is higher than the demand for medical care
9-6
Questions 23 - 27 refer to the graph below.
23. This graph represents the labor market for a(n)

a. Monopolist
b. Competitive firm
c. Product market cartel
D. Monopsonist
e. Oligopoly
24. What wage will maximize this firm's economic profit?

A. W1
b. W2
c. W3
d. W4
e. A wage above W4
25. How many workers will this firm hire?

a. 0
b. L1
C. L2
d. L3
e. More than L3
9-7
26. If this labor market is competitive, how many workers will be hired?
a. 0
b. L1
c. L2
D. L3
e. More than L3
27. If this labor market is competitive, what wage will workers be paid?
a. W1
B. W2
c. W3
d. W4
e. A wage above W4
Questions 28 - 32 refer to the graph below.
9-8
28. This graph represents the labor market for a(n)

a. Monopolist
b. Competitive firm
c. Product market cartel
D. Monopsonist
e. Oligopoly
29. What wage will maximize this firm's economic profit?

A. $500
b. $800
c. $1,000
d. Less than $1,000 but greater than $0
e. $0
30. How many workers will this firm hire?

a. 0
B. 10
c. 12
d. 15
e. More than 15
31. If this labor market is competitive, how many workers will be hired?
a. 0
b. 10
C. 12
d. 15
e. More than 15
32. If this labor market is competitive, what wage will workers be paid?
a. $0
b. $500
C. $800
d. $1,000
e. More than $1,000
9-9
33. A labor union

a. Bargains on behalf of all workers
b. Conducts lock-outs as a bargaining tool
c. Is concerned with salaries rather than work conditions
d. Does all of the above
E. Does none of the above
34. Which of the following is a work stoppage initiated by workers?

a. Lockout
B. Strike
c. Mediation
d. Arbitration
e. Monopsony
35. Which of the following is a work stoppage initiated by management?

A. Lockout
b. Strike
c. Mediation
d. Arbitration
e. Monopsony
36. One way in which professional sports leagues enforce the monopsonistic employment of
players is through
a. Free agency
b. Open arbitration
c. League expansion
D. Salary caps
e. A talent agency
37. The relatively high salaries paid to professional athletes reflect

A. Their contribution to team revenue
b. The exploitation of fans
c. Their contribution to society's general well-being
d. The success of labor union representation
e. The social value of professional sports
9-10
38. The average baseball player earns a salary greater than the average college professor
because
a. Baseball players contribute more to society's general well-being
B. College professors contribute less to their employer's revenues than baseball players
c. Colleges are better able to enforce their monopsonistic market positions
d. The market for baseball players is more competitive
e. Colleges are owned by the state
39. If a worker adds 20 units to a firm's total output, the output is sold for $2 per unit, and the
worker is paid $100, then the worker's marginal revenue product is
a. 20
B. 40
c. 60
d. 100
e. 200
40. Which of the following statements is NOT true?

a. Even though the essence of sports is competition, professional sports clubs cooperate with
each other in the marketplace
b. Professional sports leagues are economic cartels
C. From an economic perspective, the NFL, NHL, NBA and MLB are competitive markets
d. Professional sports leagues have monopsony power in the resource market
e. Owners of professional sports clubs attempt to maximize their joint profits by joining
leagues
41. Professional baseball enjoys an exemption from ________ laws that make cartels illegal
in most other industries.
a. Minimum wage
B. Antitrust
c. Common
d. Labor
e. Anti-competition
9-11
42. A cartel is more likely to be successful if

A. Cartel members produce most of the output in the market
b. Market output is heterogeneous
c. Members overlap in their control of market territories
d. All of the above
43. Which of the following factors is NOT necessary to form a successful cartel?
a. Members must be responsible for most of the industry's output
b. Member firms should produce homogeneous output
C. Members must be located in close proximity to each other
d. The cartel must be able to divide the marketplace between member firms
e. There must be a mechanism to prevent cheating by member firms
44. Today, the primary source of revenue for most major league clubs is
a. Ticket sales
b. Concession sales
c. Merchandising
D. Broadcast rights
e. Parking
45. To maximize joint profits, a cartel will produce output up to the point where
A. MR = MC
b. TR = TC
c. MR = TC
d. TR = MC
e. P = MR
9-12
46. When a professional sports league sells broadcast rights for the entire league,
a. The selling price will be higher than the price that would be charged if each team
individually sold broadcast rights
b. Fewer games will be broadcast than would be if each team individually sold broadcast
rights
c. Joint profits among all teams in the league can be maximized
d. (a) and (b)
E. All of the above
47. For a cartel, the

a. Demand curve is also the marginal revenue curve
b. Marginal revenue curve lies above the demand curve
C. Marginal revenue curve lies below the demand curve
d. Marginal cost curve lies below the demand curve at all points
e. Supply curve lies above the demand curve at all points
48. A monopsony exists whenever there

a. Are many buyers in a market
B. Is only one buyer in a market
c. Is only one seller in a market
d. Are many sellers in a market
e. Are no barriers to enter or leave a market
49. In the resource market, professional sports clubs must face the
A. Upward sloping market supply of labor curve
b. Downward sloping market supply of labor curve
c. Horizontal marginal cost of labor curve
d. Industry-level demand for labor curve
e. Upward sloping marginal revenue product of labor curve
9-13
50. A profit maximizing sports club will hire players up to the point where the
a. Demand of labor equals marginal revenue product of labor
b. Supply of labor equals the marginal cost of labor
C. Marginal revenue product of labor equals the marginal cost of labor
d. Marginal cost of labor equals the wage rate
e. Wage equals the quantity of labor available
51. In a monopsony, the difference between the marginal revenue product of labor and the
wage rate is known as
a. Joint profit
B. Monopsonistic profit
c. Monopsonistic cost
d. Cartel profit
e. Competitive returns
52. The additional revenue that a player generates for his employing team is called
a. Total player revenue
B. Marginal revenue product
c. Marginal product
d. Marginal revenue
e. Monopsonistic revenue product
53. Over the past twenty years, free agency in professional sports has
a. Increased the monopsonistic power of leagues and caused salaries to stagnate
b. Reduced the bargaining power of players and raised owner profits
C. Reduced the monopsonistic power of leagues and caused salaries to rise
d. Improved the economic position of owners by increasing the competition for good players
e. Had little effect on the sports industry
9-14
54. Which of the following statements is true?

a. From an economic perspective, most professional athletes do not earn their pay
b. Salaries in any industry reflect labor's contribution to the overall health and well-being of
society
c. Professional sports clubs operate in highly competitive product and resource markets
d. The cartel behavior of professional sports leagues keeps ticket prices low
E. The salary of a professional athlete reflects his contribution to his employing club's
revenue
55. From an economic perspective, which of the following is the best reason for a city to
attract a professional sports team?
A. A professional sports team generates publicity and creates public relations opportunities
for businesses located in the city
b. A professional sports team generates a significant number of new jobs for the community
c. Professional sports teams pay large sums of money in city taxes
d. A new team will increase the demand for other entertainment related activities within the
local community
e. Sports enhance the tax base of large cities by generating significant numbers of new
professional jobs
56. Which of the following statements is FALSE?

a. Even though professional athletes may earn millions of dollars each year, it is possible for
them to be exploited by their employers
B. From an economic perspective, professional athletes do not earn their pay
c. The economic impact of a professional sports team on their home community is relatively
small
d. Free agency has caused the salaries of professional athletes to rise over time
e. By limiting expansion, professional sports leagues ensure greater profits for the existing
teams
57. A monopsony will continue to hire workers up to the point where the
a. Marginal cost of labor is equal to total revenue
b. Total cost of labor is equal to the marginal revenue product of labor
C. Marginal cost of labor is equal to the marginal revenue product of labor
d. Marginal profit of production equals the total cost of production
e. Marginal revenue product of labor is maximized
9-15
58. Which of the following factors helps professional sports teams to exercise monopsony
power over the players that they hire?
a. Player drafts
b. Exclusive contracts that limit free agency
c. The specialized skills of players
D. All of the above
59. Which of the following factors reduces the monopsony power of professional sports teams
in the employment of players?
a. Player drafts
b. The reserve clause
c. The long-term employment contracts
d. Cartel agreements between teams
E. Free agency
60. A professional sports league can maximize the revenue it generates from selling broadcast
rights by playing enough games such that
a. Demand equals supply
b. Total revenue equals total costs
C. Marginal revenue equals marginal costs
d. Marginal revenue equals total costs
e. Total revenue equals marginal costs
61. If a cartel discovers that its marginal revenue is greater than its marginal cost of
production, the cartel should
A. Increase production
b. Shut down
c. Reduce production
d. Hire fewer workers
e. Increase the number of cartel members
9-16
62. If a cartel discovers that its marginal cost is greater than marginal revenue, the cartel
should
a. Increase production
b. Shut down
C. Reduce production
d. Hire fewer workers
e. Increase the number of cartel members
63. Teams that belong to professional sports leagues are

a. Cartel members
b. In business to make a profit
c. Monopsony employers
D. All of the above
64. Approximately what percent of funding for stadium construction and renovation has come
from public sources in recent years?
a. 1
b. about 10
c. less than 20
D. over 50
e. nearly 100
65. According to economist Andrew Zimbalist, the Jacksonville Jaguars expansion football
team has an economic impact on the local area comparable to a
A. New department store
b. Major hurricane
c. Large military installation
d. State university
e. City park
9-17
66. The primary benefits of a professional sports team are

a. Massive economic development
b. Privately funded
c. Salaries and wages
D. Intangible
e. All of the above
67. When professional sports leagues seek to achieve parity, they are seeking
a. Fair wages
B. Competitive balance
c. Teams with an athletic advantage
d. Equal marginal revenue product across teams
e. Homogeneous views on league policies
68. Which of the following contributes to monopsony power in professional sports?

a. Player mobility
b. Free agency
C. Player drafts
d. All of the above
69. Which of the following is the best economic reason for taxpayers to support the
development of facilities for professional sports teams?
A. The intangible spillover benefits of the team, such as civic pride
b. The number of jobs that will be created by the team
c. The economic impact on the city due to ticket sales
d. The new taxes that will be paid by the players and coaches
e. The tourists that will visit town while attending home games
70. When does a firm experience monopsony profits?

a. Only when the marginal cost of labor is greater than the marginal revenue product of labor
b. When the total revenue exceeds the marginal cost of production
C. Only when the marginal revenue product of labor exceeds the marginal cost of labor
d. Only when the firm is a member of a cartel
e. When the firm is a monopoly in its product market
9-18
True / False Questions
71. Professional sports clubs are businesses operated for profit.

TRUE
72. Professional sports leagues, like the NFL, were formed by teams in an effort to earn
greater profits and to ensure survival.
TRUE
73. All professional sports clubs must operate independently to guarantee a competitive
economic environment.
FALSE
74. Unlike other workers, it is difficult to measure the productivity of a professional athlete.
FALSE
75. When a player is drafted by a team, that team acquires the "property rights" to the player's
employment contract.
TRUE
76. In football, new players can sell their services to the highest bidding NFL team.
FALSE
77. Tickets and broadcast rights to baseball games are bought and sold in the product market.
TRUE
78. A cartel exists when firms coordinate their actions in a manner to maximize joint profits.
TRUE
9-19
79. Antitrust laws make most cartels legal forms of business in the United States.
FALSE
80. The National Basketball Association is a cartel.

TRUE
81. A cartel is a "shared monopoly."

TRUE
82. Prices and output are greater with a cartel than under competition.
FALSE
83. Profits are more equally distributed in a competitive industry than in an industry
dominated by a cartel.
FALSE
84. Professional sports leagues do not regulate the employment of players by member teams.
FALSE
85. A monopsony is a single buyer in a resource market.

TRUE
86. The immobility of players between teams and the athletes' highly specialized skills
generate monopsony power for professional sports clubs.
TRUE
9-20
87. The marginal cost of labor curve (MCL) represents the change in a firm's total labor cost
due to selling an additional unit of output.
FALSE
88. If a player's MRP> MCL, the player should be hired by the team.
TRUE
89. The MCL curve lies above the supply of labor curve and is more steeply sloped.
TRUE
90. A monopsony must face the market supply of labor schedule because it is the only
employer in the market.
TRUE
91. A firm can maximize its economic position by hiring workers up to the point where MCL
= MRP.
TRUE
92. A monopoly must face the market supply of labor schedule because it is the only
employer in the market.
FALSE
93. Monopsony profit is the difference between a worker's MRP and the MCL.
TRUE
94. Economic analysis suggests that a free agent baseball player will earn less than an equally
talented player who is not a free agent.
FALSE
9-21
95. Professional athletes do not earn their pay from an economic perspective.
FALSE
96. A strike is a work stoppage initiated by management.

FALSE
97. A labor union bargains on behalf of workers for better wages and working conditions.
TRUE
98. Salary caps enforce monopsonistic employment of players across teams in a professional
sports league.
TRUE
99. A recently drafted player will most likely command a higher salary than a free agent.
FALSE
100. Labor disputes are rare in professional sports and are likely to become even less
common.
FALSE
101. Most economists argue that professional sports teams should be used as an economic
development tool for local communities.
FALSE
102. The public relations benefit of a city's professional sports team is generally more
valuable than the number of jobs it creates.
TRUE
9-22
103. The economic impact of a new professional sports team on a city is about the same as a
new department store.
TRUE
104. Most new stadiums and arenas for professional sports teams are privately built, without
support from local taxpayers.
FALSE
105. Professional sports teams tend to relocate when there is a surplus of teams in their
league.
FALSE
106. The shortage of teams in professional sports is the primary reason that teams relocate.
TRUE
107. Economic factors cannot explain why teams relocate between cities.
FALSE
108. As it becomes easier for professional football players to become free agents, NFL
salaries are likely to increase over time.
TRUE
109. The economic factors that cause professional sports leagues to expand also cause some
existing teams to relocate.
TRUE
110. The "civic pride" enjoyed by a major league city has no economic value.
FALSE
9-23
111. Free agency increases the monopsony power that professional sports teams exert over the
players that they hire.
FALSE
112. If a cartel's marginal revenue is greater than its marginal cost, it should produce more.
TRUE
113. By belonging to a cartel, a firm can guarantee that its individual profit will be greater
than if it engaged in competition.
FALSE
114. The reserve clause helped to raise the salaries of professional baseball players.
FALSE
115. For a cartel, joint profit is maximized where marginal revenue equals marginal costs.
TRUE
116. Professional sports leagues are both cartels and monopsonies.

TRUE
117. College athletes who enter the major leagues are always hired by the team that is willing
to pay the highest salary.
FALSE
118. A work stoppage initiated by management is called a lock-out.

TRUE
9-24
119. By adding new teams, professional sports leagues guarantee that existing member teams
earn greater profits.
FALSE
120. From an economic perspective, all professional athletes are overpaid.

FALSE
9-25

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Chapter 09 - The Economics of Professional Sports: What Is the Real Score?

Economics of Social Issues 20th

Download solution manual at:

Download full test bank at :

Multiple Choice Questions

5. Which of the following sports leagues can be considered a cartel?

7. Which of the following best characterizes a cartel arrangement?

10. Which of the following statements is false?

12. A monopsony is a market with only one

Questions 23 - 27 refer to the graph below.

23. This graph represents the labor market for a(n)

24. What wage will maximize this firm's economic profit?

25. How many workers will this firm hire?

Questions 28 - 32 refer to the graph below.

28. This graph represents the labor market for a(n)

29. What wage will maximize this firm's economic profit?

30. How many workers will this firm hire?

33. A labor union

34. Which of the following is a work stoppage initiated by workers?

35. Which of the following is a work stoppage initiated by management?

37. The relatively high salaries paid to professional athletes reflect

40. Which of the following statements is NOT true?

42. A cartel is more likely to be successful if

47. For a cartel, the

48. A monopsony exists whenever there

54. Which of the following statements is true?

56. Which of the following statements is FALSE?

63. Teams that belong to professional sports leagues are

66. The primary benefits of a professional sports team are

68. Which of the following contributes to monopsony power in professional sports?

70. When does a firm experience monopsony profits?

True / False Questions

71. Professional sports clubs are businesses operated for profit.

80. The National Basketball Association is a cartel.

81. A cartel is a "shared monopoly."

85. A monopsony is a single buyer in a resource market.

96. A strike is a work stoppage initiated by management.

116. Professional sports leagues are both cartels and monopsonies.

118. A work stoppage initiated by management is called a lock-out.

120. From an economic perspective, all professional athletes are overpaid.

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