Deck 8: An Introduction to Labor Markets in Professional Sports

Question 1

Distinguish between general and specific training as it pertains to the human capital theory. Give an example of each kind.

Answer 1

General training improves the workers productivity regardless of the setting. For example, strength and conditioning training improve an NFL player's productivity regardless of the team that they play for. Specific training improves a worker's productivity only at
the firm that provides the training. For example, a better knowledge of the play calling terminology used by the Minnesota Vikings does not help a player to understand the play calling of the Dallas Cowboys.

Question 2

Salaries have risen dramatically in the NBA because of the dramatic rise in

A) the quality of the players.
B) the opportunity cost faced by players.
C) the market value of the product the players produce.
D) the strength of the Players' Association.

Answer 2

C

Question 3

A college player should turn pro when

A) staying in college another year increases his earnings at the interest rate.
B) staying in college another year does not increase his earnings.
C) staying in college another year increases his earnings as much as possible.
D) staying in college another year reduces his earnings.

Answer 3

A

Question 4

Explain, why a minimum wage of $100,000 per year will have no impact on the NBA labor market for athletes.

Question 5

If the Gini coefficient has risen then

A) the mean and median levels of income have risen at the same rate.
B) the mean level of income has risen faster than the median.
C) the median level of income has risen faster than the mean.
D) the mean and median levels of income have fallen at the same rate.

Question 6

In the 2009 Super Bowl, the champion Pittsburg Steelers barely held on to beat the Arizona Cardinals, yet the Steelers received a significantly higher paycheck than the Cardinals. Why
should this be?

Question 7

In the following example fill in the columns for marginal product.
$$\begin{array} { c c c } \text { Quantity of Labor } & \text { TP } & \text { MP } \\\hline 0 & 0 \\1 & 30 \\2 & 45 \\3 & 55 \\4 & 60 \\5 & 60\\\hline\end{array}$$

Question 8

Explain why rank-order tournaments use a nonlinear reward structure.

Question 9

The following market is described by the demand and supply equations. Solve the equations simultaneously to find the equilibrium wage and equilibrium quantity of labor in each market.
Qs = -20 + 3P (Supply)
Qd =125 - 2P (Demand)

Question 10

Explain the economic reasoning behind the slope of the labor supply curve.

Question 11

The following market is described by the demand and supply equations. In each case solve the equations simultaneously to find the equilibrium wage and equilibrium quantity of labor in each market. Round your answer for labor to the nearest integer.
Qs = -45 + 8P (Supply)
Qd = 220 - 5P (Demand)

Question 12

A player's marginal revenue product measures:

A) The additional revenue a team earns from its playoff roster.
B) The additional revenue a team earns from the additional productivity of one more player.
C) The additional revenue a team earns on its concessions.
D) The total revenue a team earns from its players.

Question 13

The pay of hockey players is so much below that of basketball players because

A) the opportunity cost of hockey players is so much lower.
B) the exchange rate favors teams in the United States over Canada.
C) greater TV revenue increases the marginal revenue product in the NBA.
D) greater TV revenue increases the marginal physical product in the NBA.

Question 14

Ceteris paribus, when ticket prices fall:

A) Total revenue product increases.
B) Marginal revenue product is unaffected.
C) Marginal revenue product increases.
D) Marginal revenue product decreases.

Question 15

Why was Kevin Garnett's seven-year $126 million contract worth less than $126 million on the day that that he signed it?

Question 16

Suppose a college junior could earn a salary of $500,000 by declaring himself eligible for the draft. If he waits until after his senior year, his salary will be $600,000. If the interest rate is 8 percent, should he stay for his senior year or not?

Question 17

Compensation based upon tournament finishes are most likely to be observed:

A) When players finish in rank order, with no meaningful margin of victory.
B) When player effort is difficult or impossible to monitor.
C) In individual rather than team sports.
D) All of the above.

Question 18

What pressures lead sprinters to take steroids and gymnasts to develop eating disorders? Explain the logical reason behind whatever has led to these pressures.

Question 19

Explain the economic reasoning behind the downward slope of the labor demand curve.

Question 20

In Problem 16, what should the player do if there is a 50 percent chance that the league will institute
a rookie salary cap next year set at $500,000.

Question 21

The labor demand curve for a professional athlete is based upon:

A) The marginal product of what the athlete produces.
B) The marginal revenue associated with the output the athlete produces.
C) Both "a" and "b'
D) The athlete's substitutability between labor and leisure. .

Question 22

Roster limits in team sports tend to drive up player wages.

Question 23

An increase in non-wage income will, ceteris paribus:

A) Shift the labor supply curve to the right.
B) Shift the labor supply curve to the left.
C) Shift the labor demand curve to the right.
D) Shift the labor demand curve to the left.

Question 24

One would expect a sports team who continues to add players to its roster (beyond the minimum required to "field a team") to eventually encounter:

A) Robust marginal revenue growth.
B) Increasing marginal product of labor.
C) Diminishing marginal product of labor.
D) Diminishing marginal product of capital.

Question 25

Relative to a perfectly-competitive labor market, a monopsonized one:

A) Pays higher wages and hires more workers.
B) Pays higher wages and hires fewer workers.
C) Pays lower wages and hires more workers.
D) Pays lower wages and hires fewer workers.

Question 26

Explain the differences between income and substitution effects in the context of the labor supply curve and the implications of one of these effects being stronger than the other.

Question 27

The marginal costs of effort tend to:

A) Increase as effort increases.
B) Decrease as effort increases.
C) Remain constant as effort increases.
D) Equal marginal revenue resulting from effort and all levels of effort put forth.