Summary Slides CC2017 – Advanced Economies
of Arts and Culture
Table of Contents
1. Introduction ................................................................................................................................ 2
1.1 Key economic concepts ....................................................................................................................... 2
1.2 Introduction to Cultural Economics ..................................................................................................... 5
1.3 Cultural and Creative Industries (CCIs)................................................................................................. 8
2. Government and Regulation ..................................................................................................... 11
2.1 Relationships between economies and cultural policy (Welfare economics) ...................................... 11
2.2 Cultural policy and arguments for subsidies ...................................................................................... 13
2.3 Public Finance – Taxes and Subsidies ................................................................................................. 15
2.4 How much subsidies should be allocated to the arts and culture ....................................................... 16
2.5 COVID impact and challenges ............................................................................................................ 18
2.6 Critical discussion .............................................................................................................................. 18
3. Artists’ Labour Markets ............................................................................................................ 19
3.1 Who is an artist? ............................................................................................................................... 19
3.2 Artists’ labour markets ...................................................................................................................... 20
3.3 Researching the artists’ labour markets ............................................................................................ 23
3.4 Covid19 impact and challenges ......................................................................................................... 25
3.5 Critical discussion of a paper in cultural economics ........................................................................... 25
4. Art Markets (price formation mechanisms) ............................................................................... 26
4.1 Introduction to the history of art markets ......................................................................................... 26
4.2 Market Structure and Main Stakeholders .......................................................................................... 27
4.3 Pricing the Priceless – Price Formation Mechanisms .......................................................................... 28
4.4 COVID19 challenges .......................................................................................................................... 31
4.5 Critical discussion of a cultural economic paper................................................................................. 31
5. Performing Arts (Demand) ........................................................................................................ 32
5.1 Performing arts – Market Structure and Costs ................................................................................... 32
5.2 Demand Theory in the Performing Arts ............................................................................................. 36
5.3 Ticket Pricing and ‘Scaling the House’ ................................................................................................ 37
5.4 Baumol’s Cost Disease....................................................................................................................... 37
5.5 Covid19 Impact and Challenges ......................................................................................................... 38
5.6 Discussion of Cultural Economics Paper ............................................................................................. 38
6. Music and Movie Industry ......................................................................................................... 39
6.1 Music Industry .................................................................................................................................. 39
6.2 Movie Industry .................................................................................................................................. 43
6.3 Covid-19 impact and challenges ........................................................................................................ 45
7. Heritage, Museum and their Economic Impact .......................................................................... 45
7.1 The Value of Cultural Heritage........................................................................................................... 45
7.2 Museums as Firms (deaccessioning) .................................................................................................. 47
7.3 Built Heritage .................................................................................................................................... 50
7.4 Economic Impact of Museums ........................................................................................................... 52
7.5 Covid-19 Impact and Challenges ........................................................................................................ 53
,1. Introduction
1.1 Key economic concepts
Neoclassical economics is a broad theory that focuses on supply and demand as the driving forces
behind the production, pricing, and consumption of goods and services. It emerged in around 1900 to
compete with the earlier theories of classical economics.
- Rational agents – clear preferences, maximize utility, satisfaction and outcomes
- Consumer sovereignty – consumers’ preferences determine the production of goods and
services
- Perceived value – price determinant in addition to production costs and labour costs
- Free markets – minimum government intervention
- Market equilibrium – necessary for efficient allocation of resources
- Relevant information – perfect, full and relevant information for sufficiently informed agents
- Marginal utility – additional satisfaction or benefit deriving from buying an additional unit of
a commodity or service.
Macroeconomics is the study of aggregate economic variables such as the size and growth of national
income, employment and inflation + how economy-wide policies achieve economic growth.
Microeconomics is the study of economic behaviour of individual producers and consumers à
importance of price theory = study of demand decision by consumers (willingness to pay) and supply
decision of firms (production costs, revenues, pricing, policy).
Circular flow model is a model of the economy in which the major exchanges are represented as flows
of money, goods and services, etc. between economic agents. The flows of money and goods
exchanged in a closed circuit correspond in value but run in the opposite direction.
Gross Domestic Product (GDP) is the indicator or a state of nation’s total economy, which is the
monetary value of all finished goods and services made within a country during a specific period. Using
incomes, production and expenditures.
Gross Added-Value (GAD) is the market value of goods and service during a specific period minus
costs of all input expressed in real prices.
According to the Market Theory allows the market system for individuals to exchange goods and
services voluntarily, based on prices, without knowing one another.
- Market efficiency = prices reflect all available information about a particular market and its
products at any given time
, - Market equilibrium = when the supply of goods matches demand (agents ‘behaviours are
consistent, no incentives to change behaviour) X disequilibrium = changes in conditions that
affect market equilibrium.
- Market failure = situation in which a market cannot be expected to be self-correcting and
requires intervention by regulation and/or financial subsidy by governments to achieve
maximum welfare
- High, middle, low-end markets = depend on quality, price ranges, profiles of buyers:
Theory of Firms (Microeconomics) a firm exists and make decisions to maximize profits at lower costs
(efficiency) à firms’ behaviours in different markets conditions.
- Production theory
o How much output will be produced
o How much raw material, labour, capital will be used
o Production function (= equation that expresses the relationship between the
quantities of factors employed and the amount of products obtained)
- Cost theory
o Production costs (expenses from manufacturing and providing a good or service)
o Sunk costs (already incurred, cannot be recovered)
o Marginal costs (change in total production costs to produce 1 extra unit)
o Transaction costs (expenses incurring when buying or selling a product or service)
- Revenue theory
o Profit maximization in different market
- Information theory
o Information failure (no fully relevant and available information)
o Information asymmetry (buyers or sellers are not equally informed)
o Principal agent theory/problem (conflict in priorities between a principal (owning the
assets) and an agent (to which the asset was delegated)
- Evaluation of market structure
o On efficiency and welfare criteria (can lead to government intervention)
, Industrial Organization Theory is the study of strategic behavior of firms, regulatory policy, antitrust
policy and market competition. The goal is to better understand the methods by which industries
operate, improve industries’ contributions to economic welfare and to improve government policy in
relation to these industries.
Supply and Demand:
- Demand curve: higher the price, lower the quantity demand; lower the price, higher the
quantity demanded
- Supply curve: higher the price, higher the supply; lower the price, lower the quantity supplied
- Equilibrium: no overproduction, no penury (demand is met, supply is gone)
- If price P1 > equilibrium price, demand is lower than the supply (supraduction) > price must
decrease to make the demand increase
- If P1 < equilibrium price (supply is lower, demand is higher à penury à price increases, supply
increases and demand decreases
Elasticity:
- Price elasticy of demand = economic measure of the change in the quantity demanded or
purchased of a product in relation to its price change. PED = % Change in Quantity Demanded
/ % Change in Price (elastic > 1)
- Income elasticity of demand measures the relationship between a change in quantity
demanded for good X and a change in real income YED = % Change in Quantity Demanded /
% change in income
- Cross elasticity of demand (XED) measures the percentage change in quantity demanded for
a good after a change in the price of another good. EXD = % change in quantity of X/% change
in price of Y
Demand and Supply
- Conspicuous consumption = purchasing goods or services for the purpose of displaying wealth
or social status
- Veblen goods: demand rises as prices rise (x law of demand)
- Snob effect: decrease in demand as other consumers consume a given good (get out of the
crowd!)
- Bandwagon effects/herd behaviours: demand increases with the demand of other individuals
that consume a given good (fads)
