2Babe Ruth’s Odd Career Path Babe Ruth was originally a star pitcherFrom 1916 to 1918 he was the top pitcher on Red SoxHe was one of the best in all of baseballFrom 1919 on he pitched in only 22 gamesWhy did the Red Sox stop using their best pitcher?
3Babe Ruth and Opportunity Costs The opportunity cost of using Babe Ruth in the outfield was largeOpportunity cost is the value of the forgone alternative: the alternative that must be given up when scarce resources are used for one purpose instead of another.What was the O.C. of having him play outfield?BUT: The opportunity cost of using Babe Ruth as a pitcher was greaterIn 1918 he hit more home runs than the entire Red Sox starting outfield hit in 1917What was the O.C. of having him pitch?
4Babe Ruth And Absolute Advantage Absolute advantage occurs when a person (or nation) is better at doing something than another person (or nation)The ability to produce more units of a good or service than some other producer, using the same quantity of resources.Babe Ruth was the best pitcher and the best hitter on the Red SoxRuth had absolute advantage as a pitcher and as an outfielder, but stopped pitching
5Babe Ruth and Comparative Advantage Comparative advantage exists where a person’s (or nation’s) relative advantage is greatestThe ability to produce a good or service at a lower opportunity cost than some other producer. This is the economic basis for specialization and trade.Specialization: A situation in which people produce a narrower range of goods and services than they consume. Requires trade & increases interdependence.Babe Ruth had a comparative advantage as a hitterHe had an absolute advantage as a pitcherHe had a much larger absolute advantage as a hitter
6The Gains from Specialization The Red Sox were better off with Babe Ruth as a hitterThe opportunity cost of using him as a pitcher was greater than the opportunity cost of using him as a hitterPeople, teams, and nations gain from specializing where they have a comparative advantageThat means letting others do an activity that you can do better
7Example of benefits of Specialization Over 500 athletes from the Dominican Republic, a country with fewer than 10 million people, have played Major League Baseball (MLB). Over 70 MLB players have come from just one city: San Pedro de Macoris, a municipality of only about 200,000 people located in the Dominican Republic. Few athletes from the Dominican Republic excel in other amateur and professional sports but many have competed at the highest level in MLB.
8Example of Benefits of Specialization Jamaica has a population of less than 3 million and a per capita income less than one-fifth the per capita income of the United States. In 2008 Summer Olympics, Jamaican runners won gold medals in the women’s 100 meter and 200 meter races and the men’s and women’s 4 x 100 relay races, defeating runners from the United States in each race. By specializing in the events for which they had an absolute advantage, Jamaican runners demonstrated that small nations can compete successfully with athletes from much larger countries in these events.
10Costs from Specialization End of Chapter 1 Question #2The theory of comparative advantage predicts that athletes perform better when they specialize. Studies show that young athletes are increasingly focusing on a single sport. Do you think this is a good idea? (hand-off discussion)