Diamond-Water Paradox the Diamond Water Paradox Is Essay

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Diamond-Water Paradox

The diamond water paradox is a classic example of the numerous paradoxes that can be seen in everyday life. According to the diamond water paradox, the cost of diamonds is more than the cost of water despite the fact that water is essential for human existence while diamond is more of an optional luxury item. A good application of this paradox is the difference in the wages of essential employees like teachers and firefighters as against that of the sporting athletes. While the salaries of teachers, firefighters, policemen and other essential services workers are low, those that of the professional athletes is high. So, what is the reason behind this discrepancy? The analysis below will throw more light on this difference.

Wage determination

The first step to understanding the paradoxes that exist in salaries is to understand how wages are determined. Many factors are taken into account while determining the wage among different professions. One factor is the amount of risk that is taken by a person in fulfilling his or her responsibilities on the job and in general, the higher risk a person takes, the higher will be the salary. The second factor is the difference in the level of skills between individuals. The person who has higher skills will be paid higher because he or she is better equipped to perform a job satisfactorily and also the demand for skilled workers is likely to increase over a period of time when compared to that of unskilled workers. The third factor is the difference in revenue creation. When an individual can generate more revenue for the firm, then he or she will get paid more. Finally, external factors like trade unions can determine how much a person is likely to get paid. All these factors play a vital role in determining how much wage a person earns for the work that he or she performs.

Difference in the salaries between teachers and athletes

Based on the above understanding of wage determination, we can identify the reasons for the huge difference in the salaries between teachers and athletes. As mentioned above, the amount of revenue that is generated to the firm is a major factor in determining the salary levels. The athletes generate more money for their franchise by way of ticket sales, merchandise goods and telecast rights. Sports is a popular entertainment that is watched by millions of people around the world. When translated in economic terms, this means more money for the franchise company and so the athletes get more money because of the role they play in helping the company to get more revenue.

Another factor is the marginal utility of value. As in the diamond water paradox, water is less expensive than diamonds because they are readily available and an additional unit of water adds little value to the individual. On the other hand, diamonds are scarce and every additional unit adds substantial value and this…

Online Sources Used in Document:


McLaughlin, Dan. (July 11, 2007). Rich Athletes, Poor Teachers. Mises Daily. Retrieved from: http://mises.org/daily/2626

Bureau of Labor Statistics. (2011). Occupational Outlook Handbook 2010-2011 Edition. Retrieved from: http://www.bls.gov/oco/ocos251.htm

USA Today. (2011). Major League Baseball salaries. Retrieved from: http://content.usatoday.com/sportsdata/baseball/mlb/salaries/player/top-25

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