You have been hired as an economic consultant to assess the feasibility of building a new hockey arena in the city of Saskatoon. The demand curve for attendance at the new arena per game is given by P = 100 – 0.005Q and average attendance per game (35 home games) is optimistically forecast to be 12,000; the demand curve for other entertainment goods which are thought to be substitutes for basketball games is given by P = 1500 – 0.01Q and an estimated total of 100,000 tickets per year are sold for these events. Per capita income in Saskatoon is currently estimated to be $40,000 per year, which is forecast to rise to $40,100 after stadium construction is completed (local population = 600,000). The income multiplier is thought to be 1.2. Construction costs for the new arena are budgeted to total $175 million with annual arena maintenance costs of $5 million. The city will pay for the annual maintenance costs for the first three years of arena operations. The market rate of interest is 2%. Assume that the city of Saskatoon has full employment, the construction costs are to be financed entirely by local taxes but that workers from outside the city must be hired, who will not stay in the city after construction is completed. Answer the questions below. There is not necessarily one correct answer for each question. Explain your assumptions for each question. a) Compute the direct consumption benefits. Show your work. b) Compute the indirect consumption benefits. Show your work. c) Compute the relevant economics costs. Show your work. d) Should the stadium be constructed with local taxes? Why or why not?
You have been hired as an economic consultant to assess the feasibility of building a new hockey arena in the city of Saskatoon. The demand curve for attendance at the new arena per game is given by P = 100 – 0.005Q and average attendance per game (35 home games) is optimistically
Answer the questions below. There is not necessarily one correct answer for each question. Explain your assumptions for each question.
a) Compute the direct consumption benefits. Show your work.
b) Compute the indirect consumption benefits. Show your work.
c) Compute the relevant economics costs. Show your work.
d) Should the stadium be constructed with local taxes? Why or why not?
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