Chapter 5 illustrates how demand responds to changes in the forces on which it depends. Using the theory of consumer behavior, we start out by explaining the concepts of price, income, and cross-price elasticity of demand, as well as how to derive these elasticities. We will also cover empirical evidence on the actual value of the price and income elasticities of demand for the live performing arts in several countries over several different time periods.

This chapter provides insights into how the arts labor market works. We seek to understand what motivates artists to pursue their chosen professions and discuss whether the concept of the “starving artist” is valid. Using an artist survey, we explore the stated opinions of an artist to describe who can be classified as a professional artist. We shed light on the labor market of artists by investigating the role of unions, the “superstar” phenomenon, and the decision problem of an artist using the human capital model. Finally, we discuss gender representation in the labor market as well as the gig labor market.

This chapter lies the microeconomic foundation to understand consumer demand in the cultural sector. We start out by outlining the assumptions that underlie the economic analysis of consumer choice, followed by a breakdown of how to measure the utility of the consumer, as well as how the consumer maximizes utility. We also show how to derive demand and supply curves which are essential to analyze the market powers at play in the cultural sector. Finally, we will show how to use the market demand and supply curves to determine the market price.

In this chapter, we examine and analyze private support for the arts, mostly in the form of household, corporate, foundation, and other donations. In addition to this, we also explore the role of “indirect” government support in the form of tax forgiveness for private donors. We compare arts support across countries and explain the vastly different levels of private support. Additionally, we discuss the concept of nonmonetary private donations, often in the form of works of art. Finally, we outline the advantages and disadvantages of private and/or public support.

In this chapter, we investigate the economic choices – especially the price-output choices – made by performing arts firms. We cover the factors that help in determining the optimal price–output combination for performing arts firms. Furthermore, we discuss a multitude of market types and how these market types influence the behavior of performing arts firms. We also present the objectives of the performing arts firms, which depend on whether they are in the commercial or the not-for-profit sector of the economy. Ultimately, we end up with a model for the performing arts firm that is able to predict both ticket prices and length of season.

Who engages with art? This chapter outlines methods for art companies to gain a better understanding of the socioeconomic background of their audience. We also present a cross-country comparison on participation rates in the arts to illustrate the patterns of cultural consumption around the world. To get a better understanding of the audience characteristics, this chapter also summarizes the findings of several participation studies on the socioeconomic characteristics of art attenders across countries and over time.

This chapter presents the importance of productivity in the growth of the cultural sector. We describe the concept of productivity lag, as explained by Baumol and Bowen, followed by a more formal algebraic analysis of the effects of productivity lag. In addition to a theoretical approach, we provide historical evidence on the productivity lag and its consequences. We also turn to a discussion of the forces that countervail productivity lag. Finally, we outline evidence that growth of the earnings gap has been forestalled by artistic innovation and an increasing artistic deficit.

This chapter addresses resource allocation, management of investment portfolios, and price determination issues of museums. We start by describing the role of museums and summarizing attendance at art museums. Next, we describe the cost conditions under which museums operate as well as the sources of revenue of museums. Following this, we describe the acquisition policies and management of museum’s collections. Finally, we elaborate on the concept of “superstar” museums.

This chapter provides insights into how economics can inform managers of arts organizations. First and foremost, we discuss why arts organizations exist and how they are structured. We will cover the principal–agent theory that will inform a discussion of decision rights and incentive compensation within organizations. To gain a better understanding of organizational boundaries, we dig deeper into contract theory. Finally, we use transaction-cost economics to explain the existence of art organizations and their strategic positioning.

This chapter outlines the growth process as well as determinants of growth for the cultural sector. We touch upon supply and demand factors that have stimulated growth. To illustrate the growth process across countries, we present data on attendance at the live performing arts in seven European countries and in the United States, Canada, and Australia. Finally, the chapter covers important institutional changes that occurred in the live performing arts sector from the twentieth century and beyond.

This chapter delves deeper into the process by which artists make their creations available to purchasers. We will also focus on why these purchasers decide to acquire art. Ultimately, these decisions constitute the supply of and demand for art, which eventually helps explain both the levels of art prices and the changes in those levels. We describe the market for paintings that consists of both primary and secondary markets. Finally, we describe the concepts of expected return and risk and how to evaluate whether art is a good investment.