1. You have been hired as an economic consultant to assess the feasibility of building a new basketball arena in the city of Seattle. Your task is to estimate the net consumption benefits from the use of the new facility and to advise the committee overseeing the project. You have already estimated some of the relevant numbers needed to complete your assessment: the demand curve for attendance at the new arena is given by P = 580 0.02Q and average attendance per game (80 game season) is optimistically forecast to be 19,000; the demand curve for other entertainment goods which are thought to be substitutes for basketball games is given by P = 2000 0.0001Q and an estimated total of 100,000 tickets per year are sold for these events. Per capita income in Seattle is currently estimated to be $25,000 per year, which is forecast to rise to $25,100 after stadium construction is completed (local taxpaying population = 1.6 million). Construction costs for the new arena are budgeted to total $475 million with $275 million in materials and land costs. The city will absorb the annual arena maintenance costs of $3 million. The new team owner will contribute $50 million of the construction costs. The rest will be financed by a sales tax of 1.5% for 10 years. You have estimated the annual deadweight loss from the sales tax to be $45 million. The market rate of interest is 5%. 284

1.1 Calculate an estimate of the net consumption benefits from the construction and operations of the new arena. What would you advise the board? What costs, if any, have not been taken into account?

1.2. If construction costs come in over budget at $525 million, does this change your assessment? What if average attendance is only 15,000 per game?