LeBron James, The Cavaliers, and Derived Demand

STUDENT'S VERSION

This lesson printed from:
http://www.econedlink.org/lessons/index.php?lid=865&type=student

INTRODUCTION

Suppose that the city of Beijing, China, was just awarded the Olympics. How would that award affect the labor market and the market for all resources? How would hosting the Olympics fuel growth in Beijing? When the city of Jacksonville was awarded the Super Bowl XXXIX in 2005, the depressed area, whose primary source of income was shipping, turned into an entertainment service sector overnight. The demand for all resources skyrocketed. Super Bowl XXXIX was a boom for Jacksonville

When LeBron James made a choice to play for the Miami Heat, he had to give up the opportunity to play for his hometown Cleveland Cavaliers. What economic impact did his decision have on Cleveland's service sector? In this lesson, you will see how a change in demand for Cavalier NBA tickets, merchandise, and sector related services might be affected with LeBron's departure. You will watch a Paul Solman video and listen to a Livescribe Pencast on the topic. You will then be able to illustrate the concept of derived demand by making a spider diagram and find an example of derived demand in your city.

Markets in economics are seen as free. Free markets assume that parties enter into voluntary agreements in which both parties benefit. This is the philosophical premise behind Utilitarianism. The premise in economics infers that rational actors will seek to maximize utility. The extension activity will ask you to opine about the philosophical question on freedom.

In this lesson, you will begin to make real-life connections between economics and events in your daily life. Hopefully this lesson will help you to fully understand the importance of economics in everyday life.

TASK

At the end of this lesson, you will find an example of derived demand in your city. You will also complete a Spider Diagram showing the interrelationships for one central business and the derived demand for its resources.

PROCESS

Here are some terms you need to know:

Labor Market: The labor supply and labor demand curves. The intersection of the labor supply and labor demand curves determines the equilibrium wage and the quantity of hours people work at this equilibrium wage.

Derived Demand: Demand resulting from what a good or service can produce, not demand for the good or service itself. Example: An increase in demand for cars will lead to an increase in demand for tires, car stereos, and other automobile parts. 

Utilitarianism : A moral philosophy, generally operating on the principle that the utility (happiness or satisfaction) of different people cannot only be measured but also meaningfully summed over people and that utility comparisons between people are meaningful.

On July 7, 2010, LeBron James announced to the world that he was going to play basketball for the Miami Heat. Since 2003, LeBron has played for the Cleveland Cavaliers. During that time, the "Cavs" have been vaulted into the public prominence. Economists reckon that LeBron's presence adds $100 million in city revenue each year. In the economically depressed northeast region of Ohio, many businesses have been built on Cavalier basketball. For example, NBA merchandise is sold online and in souvenir shops. In addition, theme restaurants, hotels, parking, and maintenance personnel are needed. Now that LeBron James is not going to play for Cleveland, what will happen to those businesses?

Paul Solman is a PBS journalist who has produced a video clip. After the video, your teacher will introduce the concepts of positive and normative economics followed by a further explanation Lebron James's decision and its relation to utilitarianism. 

(Optional) Play the following pencast , LeBron James to Miami Heat.

You will answer questions that your teacher asks to reinforce the topics in the Pencast.

Choose a local business and make a Spider Diagram that describes the full impact that your selected business has on the community as a whole.  You should consider what would happen to your community if this business closed.  You may want to discuss what would happen if a new business came to town that was widely successful.  You should also provide an example of the impact of derived demand on other businesses in the community.

CONCLUSION

You have now seen how one decision can have a ripple effect on the labor market. Demand for labor and other resources used to produce products is derived. In other words, if eating spider cookies suddenly becomes fashionable, there will be an increase in the demand for the labor and materials needed to make spider cookies. The changes in the spider cookie market will affect both complementary and substitute goods for the cookies. When LeBron James made his decision, he affected the demand for the labor and materials for NBA basketball in Cleveland. It's still too early to see the unintended consequences, if any, that his choice will have in Cleveland and in Miami, but a hallmark assumption of economics is that choices have consequences. The decision by LeBron James to exercise his free agency is a clinical and fascinating study in economics.

ASSESSMENT ACTIVITY

You will not have a quiz over this lesson. Instead, you will turn in your Spider Diagram along with your example of derived demand. For your example of derived demand, find a business and two or three related resource markets. If your teacher allows, this example can be imbedded into your Spider Diagram.

EXTENSION ACTIVITY

A major concept in economics is utility. Jeremy Bentham is the father of utilitarianism. His theory is that people try to maximize their pleasure or utility. Bentham would argue that an action is "good" if the action results in an overall gain in the utility of society.

Weigh the costs and benefits for LeBron using the following open-ended activity.

1. Did the costs outweigh the benefits for LeBron James when he decided to leave Cleveland for Miami? Explain

2. Will the cost of LeBron James leaving outweigh the benefits for the city of Cleveland? Explain

3. In your opinion, was LeBron James' decision to play in Miami a "good" one? Why?

(You might find it hard to determine all of the costs and benefits. Summing all of the costs and benefits is a major criticism of utilitarianism.)