Download Economic Foundations for Entertainment, Media, and Technology

Entertainment and Media:
Markets and Economics
Long Run Trends and Short Run
Outcomes: Who We Are
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Macroeconomics
Why do we work?
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Macroeconomics
How much do we work?
A Very Long Run Trend:
US hours worked is falling or steady
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Macroeconomics
International Comparison: Hours Worked (Per Year)
Americans generally work more hours than others.
Same long run trend
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Macroeconomics
Cultural Differences in Hours Worked
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Macroeconomics
The trend in hours worked is
different between
manufacturing and services
The service sector is growing
and the manufacturing sector
is shrinking.
This describes more finely the
long run trend in hours
worked: Change in the hours
worked in the service sector
and expansion of the service
sector in the economy.
Recent trend in hours worked (weekly, average), 1965-2009
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Macroeconomics
Spending on recreation is
growing in absolute terms
Per capita, real spending on recreation
and recreation services.
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Macroeconomics
The long run trend in recreation expenditure
as a proportion of real income is growing
Recreation as a % of Disposable Income
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Macroeconomics
The form of recreation spending is changing
Service Component of Recreation Expenditures
Service = Movies, Sports, … (passive) 1959-2009
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Macroeconomics
The U.S. economy grows by about 2% - 3% per year.
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Macroeconomics
E&M Is a Large “Industry”
 Total Economy
$15,000b
 Entertainment and Media
6.4%
 Health Care
19.0% (has peaked)
 Recreation of all kinds
$ 725b
 Games, sports, clubs, …
 Print Media
$ 110b
(Books, magazines, newspapers,…)
 Movies in theaters
$
12b
(All figures approximate)
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Macroeconomics
Entertainment and Media:
Markets and Economics
Short Run Outcomes
Consumer Theory
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Macroeconomics
Consumers allocate their resources
to maximize their well being
A standard model for consumer behavior
 Utility maximization over choices subject
to constraints:



Market environment: Prices
Resources


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Time
Money = Income and savings
Macroeconomics
Time Is the Ultimate Constraint
 Consumers: Maximize Utility (Consumption, Leisure)
 Constraints that limit the amounts they can consume
 Available Money = Savings + Wage*Labor
 Prices
 Pcons = Goods Prices
 Pleisure = Wage Rate = opportunity cost of leisure
 Available Time
= Labor + Consumption + Leisure
 At least for the short term, the wage (ability to earn) is fixed
 Tradeoff: To consume more, we must work more, leaving
less time for leisure.
 The fixed amount of time is ultimately the binding
constraint
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Macroeconomics
Falling hours worked is a substitution of
leisure for consumption
Does falling hours worked mean
lower income?
Aggregate GDP?
No; there are more people and
wages are higher (slightly)
For Individuals?
No; Higher real wages because of
productivity increases.
Yes: Conscious decision to take
higher income in the form of more
leisure!
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Macroeconomics
Implications of the Theory
for Changes Over Time
 As Wage rises, leisure becomes more expensive.
 As Income rises, leisure becomes more desirable.
(Leisure is a normal good.)
 Net effect over time if real wages and incomes rise?
 Higher incomes generally lead to greater demand for leisure – leisure is a
normal good
 Higher wages make leisure more expensive – consumers desire greater
consumption rather than greater leisure. Hours worked are not falling very
much any more.
 Not clear which way the result will go. Look at our macro data.
 Per capita income in the U.S. is not rising much at all.
 Hours worked is falling, but not as fast as it once did.
 Demand for entertainment seems to be rising reflecting cultural shifts.
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Macroeconomics
Reaction to short term fluctuations
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Macroeconomics
Finer detail on the allocation of
the consumer’s budget
 Consumer Budgets
 Housing
 Transportation
 Food
 Clothing
 Medical and Physical Upkeep
 Recreation (and other stuff)
 Allocation Based On
 Relative prices including the price of time
 Income and savings
 Culturally influenced preferences.
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Macroeconomics
2010
Food
Housing
Clothing
Transportation
Health Care
Entertainment
Insurance
Everything Else
$ 6373
$16895
$ 1725
$ 7658
$ 3126
$ 2693
$ 5471
$ 5127
http://www.creditloan.com/infographics/how-the-average-consumer-spends-their-paycheck/
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Macroeconomics
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Macroeconomics
Consumer Spending by Income Class
Category Avg
Top
Income
$ 51G $127G
Food
6.1% 7.1%
Health care 4.2% 2.8%
Entertain.
4.0% 3.6%
Clothing
3.3% 2.6%
Education
1.5% 1.7%
Housing
About 31%
Transportation “ 16%
Other
“ 35%
The figures suggest consumers reallocate spending as incomes change.
Careful! This shows a difference between consumers, not necessarily the
change in behavior of a particular consumer as income rises. It is only
suggestive.
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Macroeconomics
Adding It Up




Household income is not rising very much
Time spent working is steady or falling slightly
Time spent on recreation is no longer rising
Budget allocated to:




Growing entertainment market is driven by




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Entertainment is rising
Health care is rising, but more slowly now than in 2010
Food and clothing is falling
budget reallocation
changes in preferences.
changing technologies and falling prices
Demand in the recreational segment of the
economy is rising faster than overall output.
Macroeconomics