Diamonds Economists have long been fascinated by the diamond-water paradox. The question raised by this paradox is why water, a substance needed to sustain human life, is generally worth less than diamonds, a product that adds no real value to mankind.

This same question could be posed about professional athletes' salaries. How can they be so high when salaries for other occupations, that are clearly more important, are so much lower?

Go the two Bureau of Labor Statistics Web links below and fill out the Occupational Data Chart using the data you find.


For this lesson, you will learn how salaries are determined by the market forces of supply and demand.  You will next consider the diamond-water paradox and how it applies to professional athletes' salaries.  Finally, you will begin to understand the concepts of labor supply, demand and equilibrium.


Why do you think professional athletes make so much money? Let's put it in terms of the diamond-water paradox discussed in the introduction. Why do teachers, people who have the important job of educating our youth, get paid so little in comparison to professional athletes, who merely supply a form of entertainment?

The answer lies in the fact that prices of goods are set in a market. Diamonds are a scarce natural resource that commands a high price. The salaries of workers are also set in a market, and professional athletes are a scarce resource in high demand. In particular, superstar athletes are a very scarce resource. An NFL quarterback like Brett Favre, named Most Valuable Player three times to date, is one of only a few people in the world that can perform his job well and he therefore is rewarded with a salary approaching $8.5 million per year.


Quarter BackProfessional athletes make high salaries because people with their skills are scarce. The demand and supply for people in various occupations determines the salaries in question—not the “importance” of the job to society. This finding is similar to the finding that diamonds are very expensive (while useless in a practical sense) yet water is very cheap (but life sustaining).


Using the logic of supply and demand, answer the two questions below.

  1. Why do company CEO's make very high salaries while their secretaries make much less?
  2. Why do doctors make such high salaries while nurses' are much lower?


Consider the questions below.

  1. Is it true or false to say that high player salaries are the reason that pro sports ticket prices are so high?
  2. What occupations are likely to pay high salaries when you enter the labor force?
  3. What are some other factors that may affect employee wages?