|
Notes for Midterm 1. Why should people in the artistic profession study Economics? To understand the impact of economic fluctuations
and economic activity. For example, if there is a sudden rise in the number
of people who are homeless, the government will need to increase subsidies
for emergency housing. This will compete for available funds and may bid
resources away from the arts sector since subsidies come from the tax revenues
and politicians cannot readily raise taxes. It enables artists to
comprehend how national concerns such as the trade deficit, budget deficit
and the national debt affect public spending decisions in various sectors
of the economy including the arts sector.
2. What are some of the tools and methods employed by economists? An economist uses two basic methods: descriptive or positive economics (describes the conditions as "What is") and prescriptive or normative economics (describes "what should be"). Economists derive principles from studying economic phenomena and apply them to various economic problems in order to come up with policy formulations that improve, moderate or regulate the pecific economic situation. Some tools used by economists are:
Some pitfalls economists encounter are:
3. What were some of the earliest works in the study of economics of the arts? The Ford Foundation, the Rockefeller Foundation and
the Twentieth Century Fund stimulated interest in the Arts during the 1950s
and the 1960s. As a result of support provided by the Twentieth Century
Fund, William Baumol and William Bowen published a paper in 1966 entitled
Performing Arts- an Economic Dilemma.
4. What are some of the conservative and liberal estimates regarding the size of the arts sector in the U.S.? (Refer to table 1.1) Conservative estimates by Heilburn and Gray (1993) are roughly that the Arts sector accounted for $ 4.9 billion out of a GDP of $ 5.4 trillion. This puts the arts sector at .133% of the US GDP or less than 1/1000 of the GDP. However this estimate does not include: a.Volunteer employment in the arts sector. b.Value of art collections by general and historic museums and historical societies. c.Manufacture of classical music recordings and art reproductions. d.Value of output of painters and sculptors. e.Economic contributions of art dealers and galleries. f.Incomplete accounting of charitable contributions. In 1993, the National Association of Local Arts Agencies published the results of a three year study of 33 communities and 789 not- for-profit organizations. Their liberal estimate sized the arts sector of the economy at $ 36.6 billion out of a $ 6.4 trillion GDP with a labor force of 1.3 million, (roughly 1% of the labor force of the US), with 908,800 direct jobs in the arts field and the remaining jobs being in support. 5. How do economists measure growth and what has been the growth in the arts sector since 1929? Economists measure growth by computing the Gross
Domestic Product each year and comparing it to the previous years' GDP.
The GDP is calculated by adding the spending of various sectors of the
economy viz. consumers, businesses, the government, and the net exports(i.e.
what foreigners spend in net on goods and services from the US. This is
the difference between US exports and what is imported into the US from
the rest of the world).
6. What is a price index and how many different types of indices are
available to measure price changes in the
A price index allows economists to measure the changes in prices during different years and helps to pierce the "money veil". Aprice index compares the combined price of a specific market basket of goods and services in a particular year to the combined price of the same basket of goods and services in a base year. The US has three price indices to measure price changes in the economy. They are: a.The consumer price index, CPI. The CPI survey is conducted monthly by the US Department of Labor, Bureau of Labor Statistics and it studies price changes regionally for goods and services that US consumers are typically buying. b.The producer price index- PPI. The PPI surveys also conducted monthly by the US Department of Labor. Bureau of Labor Statistics studies changes in prices received by producers in US manufacturing, mining and agriculture sectors. c.The GDP deflator - Approximately 30% of all goods and services are being bought and sold by the government. For many of the public goods and services there are no determinations of market price. Unlike in the measurement of the CPI and the PPI, the market basket is allowed to change from year to year for the GDP deflator and the response to price changes in terms of quantitities bought is also allowed to change. 7. How many different forms of competition have evolved for the performing arts since 1929? Over the century, the performing arts sector has been impacted by a variety of competition that have developed. In the 19th century, it was the invention of the phonograph and then the motion picture industry. The talkies developed in 1927 had a major impact. After WW II came the development of: a.Television b.Long Play Records c.Audio Tape Systems in the 60s d.Home Video Cassette Recorders in the 70s e.Compact Disc Recordings in the late 80's f.Video Discs in the 90s. All these developments are in competition with the performing arts sector for the entertainment dollar. Motion pictures put a large crimp in industry earnings for the performing arts. Yet, since the development of television the industry's earnings have increased. This seems to suggest that the advent of television has hurt motion pictures industry more than the performing arts. Performing arts is provided a degree of insulation from the competition because: a.There is no substitute for a live performance b.Performing arts has a three dimensionality experience that cannot be substituted by motion pictures or television. c.The aesthetics associated with the above experience make consumers less sensitive to changes in ticket prices for admissions. 8. What has been the impact of the development of the motion picture industry and TV on the arts sector? Performing arts, motion pictures and spectator sports compete for consumer expenditures under the category of spectator entertainment dollars. Prior to the development of the motion pictures industry there were hundreds and hundreds of performing arts events throughout the country. The share of spectator entertainment as percentage of all recreation dollars has decreased from 21.1 percent in 1929 to 4.77 percent in 1990. Motion pictures accounted for 78-80% of spending in the entertainment market between 1929 and 1947. During the same period the performing arts shrunk from 13.9% of the market in 1929 to 9.3 % in 1947. Between 1947 and 1975 there was tremendous growth in the TV broadcast industry. Rather than hurting the performing arts, TV seems to have impacted primarily the motion pictures industry. Motion pictures share in the declining spectator industry decreased from 79.6 % in 1947 to 50.9 % in 1975 (by which time every household owned a TV) to 28.2 % in 1990. On the other hand the share of the performing arts in the spectator entertainment industry increased from 9.3% in 1947 to 18.2% in 1975 and to 35.5% in 1990. Thus development of TV seems to have had a primary negative impact on the motions picture industry. There is little evidence to show that TV has hurt the performing arts industry. To the contrary, seeing a live performance on TV may induce spending on a related good such as a CD of The Three Tenors thereby increasing overall revenues in the arts industry. 9. What factors have contributed to the boom in the arts sector since 1960? How do we judge there has been a boom in the industry? The factors contributing to the boom in the arts sector are: a.In 1957 the Ford Foundation offered support to the arts followed by the Rockefeller Foundation and the Twentieth Century Fund in the mid 60s. These organizations offered support by the way of grants to the performing arts sector. After WW II, Americans began to get a broader view of the world and to compare themselves to the European community. It was apparent that european societies had a greater appreciation for the arts. This stimulated their thinking regarding self-esteem, economic prosperity as well as ways to improve their quality of life. This increased their desire and ability to attend live performances as well as art events. b.With the establishment of the National Endowment for the Arts and the New York Council of the Arts, the arts sector began to receive public subsidies both from federal and state sources. These developments impacted the supply side of the arts sector positively. c.The increase in the availability of television and the influence of mass media helped to inform the people of up and coming events in the performing arts and with public television the masses could get access to previews of performances as well as televised performances. d.More people have been exposed to and acquired a taste for the performing arts with attendance at a college or university where appreciation of the arts has found a place in the general education curriculum. Since 1960 more people are attending institutions of higher learning. We can judge the boom by studying the changes in the percentage of disposable personal income spent on the performing arts. During the late 60s through the mid 80s, there has been an increase in the rate of spending on the performing arts sector which is 1.8 times that of the rate of growth of income in the economy. This implies that people were spending more on the performing arts sectors. 10. Spending in the arts sector has slowed down since 1986. what has been the influence on the supply side? An important aspect of the economics of the performing
arts is that production and consumption activities are simultaneous at
a specific location where the event takes place. Unlike the market for
other goods and services, where production can occur at one location, then
be distributed and consumed at some other point performing art events have
to be consumed at the point of production. This implies that the local
market should be large enough to support a minimum size producer before
it is feasible to stage a performing art event. During the seventies and
eighties in keeping with the principle of consumer sovereignty it is discernible
that the quantity supplied of these events expanded to changes in demand.
A closer examination might suggest that the high growth rate in performing
arts activity during the seventies and the eighties may not have been solely
due to rising consumer demand. Instead public and private financial support
through subsidies and donations allowed for an increase in the number of
performing arts companies and thus extend supply through touring companies
into hitherto untapped markets. In this manner the touring companies were
able to capitalize on the latent demand for performing art events. However,
more recent data shows that there has been a reduction in the number of
production agencies since 1986 as the growth of of the available market
has been "tapped out" due to the localized nature of the performing arts
11. Write some notes on the institutional changes that have occured in the performing arts sector in the 20th Century for the following: 1. theater 2. dance 3. opera and 4. symphonie orchestra. What are the relative sizes of these sectors THEATER: In the 18th and 19th centuries there were numerous touring theatrical companies. During 1920s through the 1940s Broadway Theater became synonymous with American Theater. Many forms of competition developed for the performing arts since the turn of the century particularly motion pictures and tel evision. Local theaters around the country declined first due to the great depression and subsequently due to the mobilization for WW II. In 1961 the Theater Communications Group was established as a service organization for the not-for-profit professio nal theaters. In 1966, they had 35 members. By 1992, there were 226 members. Most are organized as not for profit, yet some are commercial such as most of the Off-Broadway theaters. The Off-Broadway theaters are incubators for new playwrights and new pro ductions. The relationships between Off-Broadway and Broadway Theaters are guided by the Equity contract. All producers in New York City have agreed to this contract in which theater capacity is limited to less than 499 seats and they cannot perform in designated "Broadway" area of mid-town Manhattan. Wage scale for Off-Broadway theaters is typically lower than at Broadway. DANCE: Ballet was considered decadent and a European art form associated with a moribund aristocratic class by most Americans well into the 20th century. Among the earliest developments of Ballet were the Atlanta Ballet established in 1929 and the San F rancisco Ballet that begun as the San Francisco Opera Ballet in 1933. Ballet Theater later to become renowned American Ballet Theater was established in 1940. George Balanchine brought to America from Europe in 1933 did much to popularize Ballet in theU S. In 1963, the Ford Foundation provided a $7.8 million grant to strengthen professional ballet in the country. Ballet companies continued to receive grants from the Ford Foundation well into the eighties. The number of ballet companies rose from 18 in 1958 to 287 by 1980. Isordora Duncan and her contemporaries developed a new style of dance called modern dance. From the late 1960 s into the 1970s modern dance was spurred with help from the National Endowment for the Arts. Growth of the dance sector was phenomenal. In 195 8 there were 28 dance troupes. By 1989 there were 289. Thus it is apparent that support from the Ford Foundation and the National Endowment of the Arts has been critical for both forms of Dance i.e. Ballet and modern or American dance. OPERA: Of all the performing arts, Opera is the most expensive to produce. An opera must play to a full house to recoup their expenses and make any profit. Metropolitan Opera in New York cityÔ d by 1990 there were 117 member companies including 98 from the United States. Support again came by the way of a grant from the Ford Foundation. Between 1957 and 1979, the Foundation provided $ 16.9 million to opera companies. SYMPHONY ORCHESTRA: The oldest existing symphony orchestra is the New York Philharmonic founded in 1842. Other important orchestras in the country are the orchestras from St. Louis, Boston, Chicago, Cincinnati, and Philadelphia. In 1971 there were at least 87 US orchestras each of which had a budget of at least 100 ,000 dollars a year. Orchestras commonly draw on endowments and investments which account for a significant share of their total income. In 1965, the Ford Foundation gave a grant of 80.2 million dollars to 61 U.S. orchestras as a matching grant. By 1989 there were 217 orchestra groups in the US. Judging by gross receipts, the relative sizes of the various sectors of the performing arts are as follows: theater > symphony orchestra > opera > dance. 12. What is the diference between an audience survey and a Population survey and why is it important to conduct them? An audience survey is done on the premises of a production, for example, at a theater. The people attending are interested in aparticular type of the performing arts. We would measure such things as age, gender, occupation, education, income level, an drace to get a specific view of the audience, the centralized tendencies of those attending, their tastes and preferences, and the circumstances of their visit. Audiences differ from place to place. This type of survey is important in understanding the audience for reasons such as knowing how to price tickets and who to target for advertising. In a population survey a broad selection of socio-economic groups, similar to the socio-economic distribution of the US is studied to find out the behavior patterns of the general population. This type of survey is important to conduct as the people who attend live performances constitute only a sub-group of art appreciators. Yet it is very expensive. This survey gives a broad view of the population and the tendencies of those who appreciate the arts to aid in the formation of public policy. These types of surveys are extremely useful to many different groups of people. It is important to the government in making spending decisions regarding the size of public subsidies and the type of assistance to provide the performing arts, to the busine ss managers of ballet and dance production companies to assist them in their understanding of their competition, to theater managers for understanding the complexity of pricing, to Ô cs of their visitors and for social scientists to trace the influences of social and economic forces. 13. How does the us compare internationally in participation rates for the performing arts sector and which country has the highest participation rates? The US is typically compared to Canada and Australia as the three have a shared experience and similar history of being immigrant based countries. Internationally the US compares rather poorly, except in the category of classical music though Canada still leads U.S. participation rates in most categories. In theater,b allet, and opera, participation rates in Australia are ahead of those in the U.S. Attendance at art museums is relatively high but behind Norway, Canada and Sweden. A comparison between the US and eight European countries based on estimates of annual admi ssions to theatres and concerts per 100 population, shows Austria with the highest participation rates with the US coming last. 14. What are some important factors that influence participation rates judging by the responses from various surveys? Some important factors influencing participation rates are: a.Location- Theaters are often located in the inner cities. This helps to off-set transportation costs for those who reside there who happen to be the lower income bracket households. On the other hand, an inner city location would raise the costs for those who reside outside the city, namely, the suburb ian middle class. b.Education- Surveys show participation rates increase with the higher levels of education. Teachers and educators have a high rate of participation. c.Home-environment- With home education, e.g.: a mother or father with an interest in the performing arts, appreciation of the arts can be fostered. d.Advertising and mass-media- Theaters can recoup the high cost of production by attaining a sponsor to televise an event for additional revenues. Surveys show that those who watch televised performances will also pay for the seats. Television can also advertise up and coming events and reach a much larger audience than any other form of advertising to date. e.Income- Attendance to performing arts events rises with the income brackets. f.Occupation- Teachers and educators are more likely to attendÔ position although participation is high for all of the three professional categories. 15. Which is most important in influending participation rates; occupation, income, or education? Education is most important in influencing participation rates for several reasons: a.Students and faculty at a university are more exposed to live performances on campus. They are produced on the premises in very close proximity to most of the population at school. Advertisements of the events are highly visible. Students commonly have requirements in the fine arts to fulfill as part of their general education curriculum. b.Once a person is exposed to live performances they usually acquire a life-long taste for the performing arts. This person is more likely to buy a ticket at almost any price. c.Those who are raised in a home that is supportive of the performing arts carry a life-long appreciation. d.Teachers and educators are more likely to attend a live performance than any other occupation class. e.In studies where the population has been divided into four categories using income and education variables such as high income - high education, high income - low education, low income - high education and low income - low education, participation rates haveb een shown to increase with education in each of the four sub populations. 16. What are some of the characteristics of the broadway theater audience? In 1979 the Broadway Theater audience consisted of: a.More high school and college graduates than those either without a high school education or those with a graduate degree (although in 1979, there were fewer people with graduate level degrees). b.Mainly of people in the mid to upper middle class income levels, with attendance rising with increases in income. c.Mainly those in a managerial or professional position over technicians, sale positions, service or clerical positions or blue collar workers. d.A younger crowd with more people in the 25-34 year bracketÔ 17. Why do consumers buy any good or service? Why do consumers buy tickets for events in the performing arts? a.Demand is defined as a human desire backed by the ability to pay for the particular goods or service. A consumer will buy goods or service to receive satisfaction from their purchase. b.The utility theory is useful in understanding the motivation of the consumer and the law of diminishing marginal utility holds true in the performing arts. c.As taste for the performing arts is acquired, consumers with the acquired taste and the ability to pay will buy tickets. Consumers attend performing arts events because they perceive it as a culturally enriching event. This contributes to their sense of self esteem and their quality of life. In the 1980s when theaters revenues were down, the theaters responded by raising ticket prices understanding that consumers with a taste for the performing arts would pay the higher prices. 18. What two forces interact in the market place? What determines the price in a free market? See figures 4.3, 4.4, and 4.5 a.The two forces that interact in the market place are supply and demand. While demand is adjusts instantaneously to changes in the market, supplying the good or service involves production time lags. In demand, price and quantity are inversely related. On the supply side, price and quantity are directly r elated. A supplier aspires for market equilibrium where supply is equal to demand at the going price since market surpluses or market deficits impose additional costs. [Draw figure here, label the diagram and show market surpluses and shortages for full credit] b.Price is determined in a free market through transactions between those who demand and those who supply the goods. An equilibrium price is the market clearing price where quantities that consumers are willing to purchase and have the ability to buy is being matched by the willingness and the ability of the suppliers to produce and make available for sale assuming ceteris paribus conditions in the market. [ Show in the diagram equilibrium price and quantity to be determined at the intersection of the s upply and demand curves] 19. How are prices set for theater performances and how does this influence revenues? a.Traditionally prices are set for theater performances before the market demand is understood. Once set, due to long standing traditions, the theaters will not change their prices. b.As the supply of seats available remains constant in a theater, the supply curve for admissions is vertical at house capacity. The only variable is the demand for the seats. c.If the show is a hit and prices are set too low, revenues are lost due to the activities of investors and speculators who may engage in scalping i.e. buying cheap tickets and reselling them at a high price although this practice may be illegal. These revenues are lost to the Arts sector and accrue to another sec tor of the economy. The profits associated with scalping is refered to as ice. d.If the show is a flop and the price of admission set too high then revenues may be lost due to the additional tickets that could have been sold at a lower price. These shows have many empty seats. 20. How do economists set prices and what is their suggestion to improve theater revenues? Economists set prices after understanding the market demand and having analyzed the influences of own price, prices of related goods and incomes of the consumer on quantities demanded. They suggest using the two tier pricing technique to improve theater revenues: a.Where a number of tickets are available at a higher set price for those consumers who prefer the guarantee of a seat and date confirmation to see an event. Part of the patron's utility comes from having a guaranteed seat. b.Then placing the remaining tickets up for sale for at lower price available on a first come first served basis. There is no guarantee of ticket availability for this patron when he/she desires to see the show. Using this method, Broadway Theater for instance gained revenues previously lost to scalpers in the form of ice. Unsold tickets at the high price are sold at an outlet in Times Square and two other locations in New York city at lower prices to boost reve nues. [For full credit, draw figures to complement your answer] 21. Write some notes on price elasticity, income elasticity and cross price elasticity. Price elasticity is the measure of how demand stretches
with regard to a price change. It is the percentage change in the quantity
demanded due to a percentage change in price. Understanding price elasticity
will help to maximize profits.
|