For years, Anthony Gallis, his wife, and their four children traveled from Dallas, Pennsylvania to South Bend, Indiana where they rented a house for $1,200 a weekend so that they could see Notre Dame football games. On the weekend of the 2006 home opener against Penn State, someone else arranged to rent his house months earlier, and another house recommended to him at $3,000 was also taken. A parking pass sold for $500, and a pair of tickets with face prices of $59 went for $3,200 for the Penn State game on eBay. Hotel prices and the cost of restaurant meals are also much higher on football weekends than during the other 341 days of the year—particularly in years when Notre Dame is expected to have a winning season. (Ilan Brat, “Why Fans Pay Through the Nose to See Notre Dame,” Wall Street Journal, September 7, 2006.) Use a supply-and demand diagram to illustrate why, when the demand curve shifts to the right, the prices of hotel rooms and rental apartments shoot up. (Hint: Carefully explain the shape of the supply curve, taking into account what happens when capacity is reached, such as occurs when all hotel rooms are filled.)

The U.S. Bureau of Labor Statistics reports that the average salary for postsecondary economics teachers in the Raleigh-Durham-Chapel Hill metropolitan area, which has many top universities, rose to $105,200 (based on a 52-week work year) in 2003. According to the Wall Street Journal (Timothy Aeppel, “Economists Gain Star Power,” February 22, 2005, A2), the salary increase resulted from an outward shift in the demand curve for academic economists due to the increased popularity of the economics major, while the supply curve of Ph.D. economists did not shift.

a. If this explanation is correct, what is the short-run price elasticity of supply of academic economists?

b. If these salaries are expected to remain high, will more people enter doctoral programs in economics? How would such entry affect the long run price elasticity of supply?