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c01analyzingeconomicproblems 6/14/10 1:38 PM Page 15

1.2 THREE KEY ANALYTICAL TOOLS 15
in the supply curve results in an increase in the equilibrium price of pistachio nuts
from 4,200 toman to 5,300 toman per kilogram and a decrease in the global equilibrium
quantity of pistachios from Q 1 to Q .
2
Almost every day you can find examples of comparative statics in The Wall Street
Journal or in the business section of your local newspaper. Typical items deal with ex-
ogenous events that influence the prices of agricultural commodities, livestock, and
metals. It is not unusual to see headlines such as “Coffee Prices Jump on News of
Colombian Labor Strike” or “Corn Prices Surge as Export Demand Increases.” When
you see headlines such as these, think about them in terms of comparative statics. As
Application 1.2 shows, we can even use comparative statics analysis to illustrate the
impact of an economic downturn on the price of tickets to a major sporting event.
The two Learning-by-Doing exercises that follow Application 1.2 show you how you
can perform a comparative statics analysis of a model of market equilibrium and a
model of constrained optimization.

APPLICA TION 1.2
The Toughest Ticket in Sports went down. On April 10, 2009, Stubhub reported that

the price of Masters badges to the second round of
The Masters, held every year in Augusta, Georgia, is ar- the tournament had fallen from $1,073 in 2008 to
guably the most prestigious professional golf tourna- $612 in 2009, a decline of 43 percent. 10
ment in the world. (It is one of professional golf’s four The most important difference between 2008 and
“Majors”). But Masters tickets (actually known as 2009 was that in the spring of 2009, the United States
“Masters badges”) are like season tickets to a football was in the midst of a deep recession that affected the
team—if you have obtained them in the past, you can demand for many goods that consumers viewed as lux-
continue to obtain them. And they are so prized that uries. It seems likely that some people concluded that a
the individuals who have obtained them in the past trip to watch the Masters golf tournament in person
continue to obtain them. As a result, tickets to the was a luxury they could do without.
Masters have not been sold to the general public since Figure 1.4 shows a comparative statics analysis
1972. Even the waiting list has been closed off because that illustrates the impact of recession on the market
it is so long. For this reason, a ticket to the Masters is for Masters badges. In a given year, the supply of
known as the “toughest ticket in sports.” According to Masters badges is fixed, so the supply curve S is verti-
one ticket broker, Masters badges are “among the most cal, indicating that the supply of available badges
coveted tickets for any event, sporting or otherwise.” 9 does not vary with the price. The demand curve in a
If you want a Masters badge, you must obtain it typical year is D 1 . A typical price (e.g., in a year such
from a ticket broker such as Stubhub or on an as 2007 or 2008) for a Masters ticket would be, say,
Internet auction site such as eBay. Even though the $1,100, which occurs at the intersection of S 1 and D 1 .
face price of a Masters badge is in the hundreds of But the recession of 2009 caused a leftward shift in
dollars, people who obtain Masters badges on the the demand curve from D 1 to D 2 , indicating that at
Internet or from a broker typically pay a price in the various possible prices of Masters badges, the quan-
thousands. Effectively, the price of Masters badges is tity that consumers were willing to purchase was less
set in the marketplace. in 2009 than in 2008. The result of this change in the
In 2009, something happened that had not hap- market for Masters badges is a drop in price from
pened in several years: The price of Masters badges $1,100 to $600.

9 “How to Get Masters Tickets,” http://golf.about.com/od/majorchampionships/a/masters_tickets.htm
(accessed April 10, 2009).
10 “$612: Friday Masters Badges on Stubhub,” http://online.wsj.com/article/SB123932360425607253.
html#mod=article-outset-box (accessed April 10, 2009).