Microeconomics Case Please View Attached Docs Included

Microeconomics Case

Please view attached docs included works cited page end paper. Title paper Microeconomics Case

Microeconomics case assignment 3: Why are athletes' salaries so high?

Perhaps the most obvious reason for the stratospheric nature of athletes' salaries is the unique talents that athletes possess. A doctor, nurse, or teacher may perform far more vital functions for society. But even in such competitive white-collar professions, few doctors and teachers are irreplaceable. Professional elite athletes possess very specialized skills and talents so they can command absurdly high salaries. Wages in any labor market are determined by the laws of supply and demand, not social justice. In a command economy, the state could determine that a firefighter should earn more than an athlete, but not in a capitalist system. The benefits a teacher provides a student, while considerable, are often only manifest in economic terms after many years. In contrast, a baseball player quickly earns his or her franchise money through selling paraphernalia with his name on it, promoting the sales of season tickets, and generating advertising revenue. "When people start paying to watch teachers teach…their salaries will get closer to what players make" (Chass 2002).

Doctors, nurses, teachers, and firefighters may be as necessary as water. However, much like water, because they are seen as common, they command a lower price than the diamonds of the labor market -- the athletes. It could also be added that because athletes participate in spectator sports, they are seen as more valuable. Diamonds are beautiful to gaze at, but water is only valued when it is absent and there is a drought (just like nurses and other professionals can command higher salaries when there is a shortage in the labor force, although even then they cannot command as high a market price as top baseball players). The economic law of marginal productivity also means that the value of teachers will be lower than the value assigned to athletes: "When some item is widely available in abundance, such as water in most inhabited areas, the next unit acquired will be relatively inexpensive, the value applied to it by users will be low. If you don't take one gallon now, there will always be more where that came from" (McLaughlin 2007).

The fierce competition amongst professional athletes forces them to train hard, with focused determination, to secure places in the few, remaining openings that exist for them within the sport. "Lives are saved and enriched by the world's thousandth-best doctor and thousandth-best teacher. But there is no place in professional baseball for the world's thousandth-best shortstop. A successful doctor doesn't push other doctors out of the profession; a successful shortstop renders some other shortstop unnecessary" (Landsburg 2000). The make-or-break nature of sports, which demands years of preparation and many hours of practice a day means that it is not worthwhile to expend such effort unless the chance of a payoff is very great, given that a prospective athlete may gain nothing in his or her gamble to be the best.

Why are owners willing to pay athletes so much? There is a clear relationship between a player's ability to win and his ability to draw crowds to the ballpark. To make adequate revenue from selling tickets, the team has a strong incentive to fill every seat (preferably with high-paying season ticketholders). The operating costs of the ballpark are the same, regardless of the attendance, and it is necessary to sell as many tickets as possible to ensure that the overhead of stadium upkeep and maintenance are 'met.' The high salaries of baseball players do not cause ticket prices to be high: rather, the ability of a sports franchise to command a high price is what is most influential in setting prices. Tickets (much like diamonds) are not a necessity and are only intrinsically valuable so far as people give them value.

Teams will sell as many tickets for as high a price as they possibly can, so long as the price does not drive potential purchasers away. The more successful the team, the more people will be willing to pay to see the team, hence the need for top-flight talent. But the high prices are paid to the best available players so the athletes will join a particular team. Salaries do not directly affect ticket prices: the desire of fans to buy tickets determines ticket prices. "With Jeter on board, the Yankees can -- and probably will -- charge more for tickets, but that's true whether Jeter gets seventeen million dollars or seventeen cents. It's not his high salary that raises ticket prices; it's his ability to raise ticket prices" (Landsburg 2000).