Lecture 4 Artists and Performing Arts Organizations Professor Julia Lowell lowell@econ.ucsb.edu Spring 2012 4/11/2012 Econ 191ac -- Lecture 4 1
Outline: Lecture 4 Key points from Lecture 3 Go over Homework 3 (due today) More on the elasticity of demand for the arts Artists Organizations in the arts: versus for-profits Homework for Monday 4/16 nonprofits 4/11/2012 Econ 191ac -- Lecture 4 2
Review of Lecture 3 Characteristics of Live Performing Arts Markets Fixed supply per performance implication? Ticket price is set before demand is known implication? Consumers care about ticket price implication? 4/11/2012 Econ 191ac -- Lecture 4 3
Review of Lecture 3 Characteristics of Live Performing Arts Markets Fixed supply per performance vertical supply curve Ticket price is set before demand is known Can t easily adjust to demand fluctuations Consumers care about ticket price Usual downward-sloping demand curve 4/11/2012 Econ 191ac -- Lecture 4 4
Review of Lecture 3 Price Discrimination Helps Ameliorate High Variance in Demand Tickets to performances priced according to quality of seat type of consumer (students, e.g.) date of purchase But why not simply adjust ticket price in response to demand fluctuations (like airlines do)? How do airlines prevent after-market ticket exchanges? Why don t airlines worry about people with similar seats paying different prices? 4/11/2012 Econ 191ac -- Lecture 4 5
Review of Lecture 3 Price Effects of Hits and Flops When a show is a hit Ticket prices go up But the price premium typically goes to brokers and scalpers Not to promoters, venues, or acts When a show flops Ticket prices don t fall by much Because brokers/scalpers can t sell cheap tickets Lots of tickets show up at the TCKTS booth But show must close down if it can t cover its variable costs 4/11/2012 Econ 191ac -- Lecture 4 6
Review of Lecture 3 And Finally What Determines A Hit or A Flop? We Don t Know But the usual suspects for influencing the quantity demanded of any good are Tastes Price Income Prices of rival goods Prices of complementary goods 4/11/2012 Econ 191ac -- Lecture 4 7
In-Class Exercise: Factors Affecting Demand for Seats at the LA Phil ticket price, LA Philharmonic Trace out the likely effect on the demand curve of an increase in the ticket price the median income of Angelenos the price of tickets to the LA Opera the price of tickets to the SF Symphony the price of parking in downtown LA a feature article on Gustavo Dudamel in the Sunday LA Times D seats per performance 4/11/2012 Econ 191ac -- Lecture 4 8
Slope vs. Elasticity The slope of the demand curve measures the effect of a change in the quantity demanded of good i on the price of good i Slope = ΔP/ΔQ Elasticity is the percent change in quantity demanded of good i in response to a percent change in some other variable. When that variable is the price of good i, then we are talking about the elasticity of the demand curve. ε p = ΔQ/Q ΔP/P 4/11/2012 Econ 191ac -- Lecture 4 9
Elasticities To Get To Know Own-price (P) elasticity: ΔQ/Q = ε p ΔP/P Income (Y) elasticity: ΔQ/Q = ε y ΔY/Y Cross-price (P j ) elasticity: ΔQ i /Q i = ε pj ΔP j /P j 4/11/2012 Econ 191ac -- Lecture 4 10
Own-Price Elasticity: Some Terms ε p < 1, demand is inelastic When the price rises by 1 percent, the quantity demanded falls by less than 1 percent ε p = 1, demand is unitary ε p > 1, demand is elastic When the price rises by 1 percent, the quantity demanded falls by more than 1 percent 4/11/2012 Econ 191ac -- Lecture 4 11
Income Elasticity: Some Terms ε Y < 0, the good is an inferior good When income rises, the quantity demanded of the good falls 0 < ε Y 1, the good is a normal good ε Y > 1, the good is a luxury good When income rises by 1 percent, the quantity demanded increases by more than 1 percent Cultural goods are typically assumed to be luxury goods is this necessarily the case? 4/11/2012 Econ 191ac -- Lecture 4 12
Cross-Price Elasticity: Some Terms ε ij < 0, goods i and j are complements When the price of good j rises, the quantity of good i demanded falls ε ij > 0, goods i and j are substitutes When the price of good j rises, the quantity of good i demanded rises Complements to live cultural events include parking, babysitting, restaurant meals, and modes of transportation Substitutes for live cultural events include other live cultural events, other cultural activities, and other leisure activities 4/11/2012 Econ 191ac -- Lecture 4 13
Factors That Influence Own-Price Elasticity (1) What factors might make consumers more responsive to changes in the price of a product? 4/11/2012 Econ 191ac -- Lecture 4 14
Factors That Influence Own-Price Elasticity (2) What factors might make consumers more responsive to changes in the price of a product? Availability of alternatives (rival products) Need for the product Others? 4/11/2012 Econ 191ac -- Lecture 4 15
HW3 - for Weds 4/11 (1) You are the producer of a hit Broadway show with excess demand at the current ticket price. You want to maximize revenue. You have the option of either raising the ticket price or moving to a larger theater. There are no transaction costs associated with the move, and many Broadway shows that compete with yours. What should you do? Explain your answer in terms of the own-price elasticity of demand. Use graphs. 4/11/2012 Econ 191ac -- Lecture 4 16
HW3 A Good Answer Justin: Both increasing the ticket price and moving to a larger theater could increase profits. But with so many substitutes available, demand to see Broadway shows is relatively elastic and a price increase might scare away some of those people willing to pay at the current ticket price. Because of this, and especially because there are no transaction costs associated with moving to a larger theater, moving would be the smarter option. Those people that purchased tickets at the previous price would still be willing to purchase at that price, and due to the increased seating, those willing but previously unable to pay at that price would now be able to. 4/11/2012 Econ 191ac -- Lecture 4 17
HW3: Comparing Revenue in the Case of Inelastic Demand b a c 4/11/2012 Econ 191ac -- Lecture 4 18
HW3: Comparing Revenue in the Case of Elastic Demand a b c 4/11/2012 Econ 191ac -- Lecture 4 19
What We Know About Own-Price Elasticity in the Live Arts For arts firms in the nonprofit sector, demand appears to be xxxxxxxxx 4/11/2012 Econ 191ac -- Lecture 4 20
What We Know About Own-Price Elasticity in the Live Arts Research suggests tht, for arts firms in the nonprofit sector, But, demand appears to be price-inelastic, which could imply they are producing in the low pricehigh quantity range of their demand curves which does imply that revenue could be increased by raising ticket prices nonprofits don t want to discourage donations most studies have looked at demand for the performing arts industry, not individual firms (why does this matter?) 4/11/2012 Econ 191ac -- Lecture 4 21
What We Know About Income Elasticity in the Live Arts For the cultural products of nonprofit arts firms, Might expect income elasticity to be high -- culture as luxury product (What does this imply about the expected magnitude of ε y?) 4/11/2012 Econ 191ac -- Lecture 4 22
What We Know About Income Elasticity in the Live Arts For the cultural products of nonprofit arts firms, Might expect income elasticity to be high (culture as a luxury product) (What does this imply about the expected magnitude of ε y?) But, Most studies find that ε y hovers close to 1 4/11/2012 Econ 191ac -- Lecture 4 23
What We Know About Income Elasticity in the Live Arts For the cultural products of nonprofit arts firms, Might expect income elasticity to be high (culture as a luxury product) (What does this imply about the expected magnitude of ε y?) But, Why? Most studies find that ε y hovers close to 1 4/11/2012 Econ 191ac -- Lecture 4 24
What We Know About Income Elasticity in the Live Arts For the cultural products of nonprofit art firms, Might expect income elasticity to be high (culture as a luxury product) (What does this imply about the expected magnitude of ε y?) But, Why? Most studies find that ε y hovers close to 1 Bad studies Opportunity cost of leisure time (as income rises, value of time does too) 4/11/2012 Econ 191ac -- Lecture 4 25
ARTISTS 4/11/2012 Econ 191ac -- Lecture 4 26
Who Is an Artist? (from NEA report, Artists in the Workforce 1990-2005) 4/11/2012 Econ 191ac -- Lecture 4 27
Nationally, The Largest Category of Artists Is Designers Source: 2003-2005 American Community Survey 4/11/2012 Econ 191ac -- Lecture 4 28
Nationally, The Largest Category of Performing Artists Is Musicians or Composers Source: 1990 Population Census 4/11/2012 Econ 191ac -- Lecture 4 29
California, New York, Texas, and Florida Have the Most Artists Source: 1990 Population Census 4/11/2012 Econ 191ac -- Lecture 4 30
Number of Artists Per 10,000 People, by State (1) 4/11/2012 Econ 191ac -- Lecture 4 31
Number of Artists Per 10,000 People, by State (2) 4/11/2012 Econ 191ac -- Lecture 4 32
Number of Artists Per 10,000 People, by State (3) 4/11/2012 Econ 191ac -- Lecture 4 33
Half of All Artists Live in 30 Metropolitan Areas Top 10 Urban Centers for Artists Source: American Community Survey 2003-2005 4/11/2012 Econ 191ac -- Lecture 4 34
Distinguishing Characteristics of Artists They are more highly educated than average Americans Twice as likely to have earned a college degree They earn less relative to other professionals with their educational level Nonmonetary benefits disconnect labor supply from wages They are less likely to find work in their chosen field than other professionals 4/11/2012 Econ 191ac -- Lecture 4 35
Median Annual Earnings of Artists in 2006 4/11/2012 Econ 191ac -- Lecture 4 36
Artists Are More Often Self-Employed and Under-Employed than Other Professionals About 34% of artists are self-employed (compared to 10% of labor force) Another 54% work for commercial firms 8% for nonprofits (40% of musicians do) Most artists are not able to support themselves with their art One-third of artists work only part of the year Three-fourths hold non-arts jobs at least part of the time Painters and sculptors reported just 20% of their earnings come from art (1987 SPPA) 4/11/2012 Econ 191ac -- Lecture 4 37
Sources of Data on Artists Bureau of Labor Statistics (employer surveys) Occupational Employment Statistics (OES) http://www.bls.gov/oes/current/oes_stru.htm Occupational Outlook Handbook http://www.bls.gov/oco/home.htm U.S. Bureau of the Census (household surveys) American Community Survey http://www.census.gov/acs/www/ Current Population Survey Cultural Policy and the Arts Data Archive (CPANDA) www.cpanda.org Private surveys conducted by researchers at universities, consultancies, research institutes etc. Professional and amateur artist associations, unions 4/11/2012 Econ 191ac -- Lecture 4 38
Sources of Data on Artists Bureau of Labor Statistics (employer surveys) Occupational Employment Statistics (OES) http://www.bls.gov/oes/current/oes_stru.htm Occupational Outlook Handbook http://www.bls.gov/oco/home.htm U.S. Bureau of the Census (household surveys) American Community Survey http://www.census.gov/acs/www/ Current Population Survey Cultural Policy and the Arts Data Archive (CPANDA) www.cpanda.org Private surveys conducted by researchers at universities, consultancies, research institutes etc. Professional and amateur artist associations, unions 4/11/2012 Econ 191ac -- Lecture 4 39
HOMEWORK PLEASE E-MAIL TO ME BY SUNDAY NIGHT, IF POSSIBLE 4/11/2012 Econ 191ac -- Lecture 4 40
Class Project Homework for Monday 4/16 (1) First step toward class project report on Excel sheet (1) Choose 5 U.S. metropolitan areas that had populations of 80,000 to 400,000 in 2000 Data: US Census Bureau, Census 2000, www.census.gov (try the ranking and comparisons tables) (2) For each metro area, report Population Percent of population 65 years and older Percent speaking a language other than English at home Percent that are college-educated (BA or higher) Per capita money income Percent of persons below poverty line Data: US Census Bureau, State and County Quick Facts (navigate from Census 2000 page) 4/11/2012 Econ 191ac -- Lecture 4 41
Class Project Homework for Monday, 4/16 (2) Explain the difference between a Metropolitan Statistical Area and a census defined city (incorporated place). Which is usually bigger? (A hint on where to find this information will be posted on the class website) For each data element you collected on your cities (percent elderly, non-english speaking, collegeeducated, etc.) tell whether that makes citizens more or less likely to participate in the arts. Explain what you mean by arts. 4/11/2012 Econ 191ac -- Lecture 4 42