Transcript The Economics Of Sport and Leisure

The Economics of Sport and
Leisure
Content
• Sport and Leisure industries
• Demand and supply analysis of leisure events
• Income elasticity of demand and leisure
activities
• Monopolies in the leisure sector
• Exchange rates and the travel industry
Sport and Leisure Industries
• The sport and leisure industries covers the
following:
–
–
–
–
–
Holidays and travel
Film industry
TV
Theatre
Sports
Demand and Supply Analysis Of
Leisure Events
• Demand and supply interact resulting in an
equilibrium price for leisure events
• Generally the higher the price of the product /
event the less is demanded
• The demand curve shows an inverse
relationship between price and quantity
demanded
• If price changes then you would move along
the demand curve to calculate any change in
quantity demanded
Shifts in the demand curve for leisure
events
• Shifts in the demand curve for leisure events can be caused
by:
– Prices of other goods – either substitutes (other leisure events) or
compliments
– Incomes
– Tastes and fashions
– Consumer expectations
– Advertising
– Population level and structure
• These factors can enable the demand curve to shift to the:
– Left (less demanded at each price)
– Right (more demanded at each price)
• For example fashion and tastes could change meaning rugby becomes
more popular so the demand for rugby increases shifting the demand
curve out
• The current performance of British teams and individuals influences the
demand for sporting events if British teams / individuals are doing well
demand is likely to be higher
Supply of leisure events
• The supply curve shows the relationship between
price and quantity demanded
• The supply curve generally slopes upwards at higher
prices more is supplied
• There is a positive relationship between price and
quantity supplied
Shifts in Supply Curve
• The following factors can cause a shift in supply:
–
–
–
–
–
–
Profitability of other goods / services
Technology
Costs of production / supply
Natural shocks
Social factors
Expectations of producers
Demand and Supply Curve and leisure
events
• The demand of leisure activities has increased
in the UK as peoples incomes have risen
• Changes in tastes / fashions and technology
have also helped fuel the increase in demand
• Since the 1960’s people have been spending
more time and more money on leisure
activities
Income elasticity of demand and
leisure activities
• Income elasticity of demand measures how
responsive quantity demanded is to a change
in income
• Generally for leisure activities demand is
elastic so when income increases demand
increases by a greater proportion
• This is because leisure activities are seen as
luxuries
Income elasticity and leisure
activities
• Elasticity of specific activities is influenced by
the following factors:
– Number of substitutes – many leisure activities
have lots of substitutes – if the price of going to
the cinema increases people may rent films or go
bowling instead
– The % of income spent on the product – if leisure
activities are relatively cheap e.g. the cinema they
are likely to be more inelastic than more
expensive activities such as holidays
Monopolies in the leisure sector
• Monopolies are examples of market failure
• In some sectors of the leisure industry there
tend to be large companies that dominate the
market
• This is apparent in the travel industry where
travel agents are dominated by Thomas cook
and airtours in the UK
• Cinemas also tend to be dominated by large
companies such as the Odeon, vue and UCI
Monopolies: leisure centres
• The markets tend to be more like oligopolies
in nature
• This means that the firms often set prices
which leaves the consumer with less choice
Exchange rates and the travel
industry
• Exchange rates influence the demand for holidays
• If the £ is strong then the relative cost of going on
holiday is lower and therefore demand for holidays is
likely to increase
• The exchange rate between the £ and other
currencies will influence the demand for holidays to
different countries
• Recently the $ has depreciated in value against the £
therefore holidays to the USA are cheaper and there
has been an increase in demand for these
Summary
• Sport and Leisure industries cover holidays, film, TV and
cinema.
• The price and quantity of leisure events demanded or
supplied is influenced by the interaction between the demand
and supply curves.
• Shifts in the demand curve such as increased incomes have
increased the demand for leisure activities.
• Leisure activities tend to be income elastic as they have lots
of substitutes and are luxuries.
• Holidays are income elastic as they take a large proportion of
people’s incomes.
• Some areas of the leisure sector like holiday companies and
cinemas are dominated by large companies which set prices.
• Exchange rates influence the demand for holidays. When the
£ appreciates more people will go on holiday as it is relatively
cheap.