1. Comparative Advantage and Specialization Sports and Trade
Williams
Economics 1

2. Key Terms Specialization Comparative Advantage Absolute Advantage
Opportunity Cost

3. Specialization
Concentration on producing things that a country can produce most efficiently
Why do countries specialize?
Specialization means focusing on strengths
Success means maximizing profit (increased exports)
Why do sports teams specialize?
Success in sports means maximizing profit
Teams want specialty players who will bring up attendance

4. Absolute Advantage vs. Comparative Advantage
When a country can produce more of the same “resources” than another country, they have an absolute advantage.
Comparative advantage encourages countries to produce those goods for which they have the lower opportunity cost than another country
In sports, comparative advantage explains why some athletes play one sport over another or one position over another

5. Neighborly Comparative Advantage
Chore
Total Time Spent in Minutes
ADAM DAVID
Minutes Spent on Each Chore
W/O Trade w/Trade
Mow lawn
120
Weed garden
100
Time working without trade
220
Time working with trade
Net gain from trade 20
Comparative Advantage explains why specialization arises even when other people enjoy absolute advantage in producing all goods
Comparative advantage=do what you do best and trade for rest (or find substitute supplier)
If Adam and David each have a lawn to mow and a garden to weed. If Adam mows both lawns and David weeds both gardens, each saves 20 minutes that they can spend doing other things. Adam has absolute advantage in both things, but he benefits from trading. This occurs because each person is relatively more efficient in one activity than another. By specializing, they BOTH save time. WIN/WIN instead of zero-sum gain.

6. Comparative Advantage U.S. and Japan
Labor to make computers
100
120
Labor to grow a ton of wheat 5 8
COPY this chart into your notebook to answer the following question in class.
What country has the absolute advantage in computer production?
What country has the absolute advantage in wheat production?

7. Assume US allocates labor: 100 units to computers 200 units to wheat
Assume Japan allocates labor: to computers
180 to wheat
How much wheat and computers does the U.S. produce?
How much wheat and computers does Japan produce?
What are “world” production totals?
US produces 1 computer and 40 tons wheat
Japan produces one computer and 22.5 tons wheat,
World gets 2 computers and 62.5 tons of wheat

8. U.S. has comparative advantage in production of wheat
What if U.S. allocates all of its production to wheat and Japan produces as many computers as possible? How much does the “world” produce?
Japan converts wheat to computers at the rate of ____ tons wheat to 1 computer
U.S. converts wheat to computers at the rate of ____ tons wheat to 1 computer
U.S. sacrifices production of more wheat than Japan in the production of 1 computer
U.S. has comparative advantage in production of wheat
Japan has comparative advantage in production of computers
US=0 labor % 100 = NO COMPUTERS; 300 % 8 = 60 tons wheat
Japan=240 % 120 = 2 computers; use rest of labor for wheat, 60%8=7.5
WORLD has tons wheat, for total of 67.5, which is great than prior answer AND two computers.
JAPANs converts 120 % 8 or 15 wheat to 1 computer
US converts 100 % 5 or 20 tons wheat to one computer

9. Opportunity Cost
Opportunity cost: trade-off; what you give up for decisions
If U.S. makes decision to produce both computers and wheat, it gives up the opportunity to make more wheat
Decision to play a sport or play a certain position in sports has opportunity costs.
Ex: If you play running back in football, you give up the opportunity to throw the ball.

10. The Story of Babe Ruth
Greatest power hitters in history of Major League baseball
Left-hand pitcher
Begin professional career with Boston Red Sox in 1914
By 1915, was starting pitcher
1916-leads American League in earned run average and shutouts; finished third in strike-outs and wins
Leads Red Sox to win World Series championships in 1915, 1916, 1918
U.S. baseball player, one of the greatest hitters and most popular figures in the sport's history. He was born in Baltimore and raised in poverty. He began his career in 1914 as a member of Baltimore's minor-league team, and joined the Boston Red Sox later that season. He started as a pitcher, compiling an outstanding record (94 wins, 46 losses), but switched to the outfield because of his powerful hitting. Sold to the New York Yankees in 1920, he remained with the team until 1934; he played his last year with the Boston Braves (1935). He coached the Brooklyn Dodgers in 1938, but his reputation for irresponsibility prevented his obtaining a permanent coaching or manager's job. His prodigious slugging earned him the nickname "Sultan of Swat." In 1927 he set the most famous of all baseball records when he hit 60 home runs in a single season, a mark that stood until He hit at least 50 home runs in four separate seasons and at least 40 in each of 11 seasons. His career slugging percentage (.690) remains an all-time record; he ranks second in career home runs (714, behind H. Aaron), runs (2,174, behind T. Cobb), and runs batted in (2,213, again behind Aaron), and third in extra-base hits (1,356, behind Aaron and S. Musial).

11. Babe, cont’d String of consecutive scoreless innings pitched was 29
No designated hitters at time
On days he didn’t pitch, Babe was first baseman or outfielder
As part-time hitter, hit 11 home runs in 1918 (tied in American League)
Most runs hit by team members: 1 !!
: Out of 46 homeruns hit by Red Sox, he hits 40 (86%); with only 11% of team’s at bats, accounts for 24% of runs batted in

12. Babe Goes to New York Contract sold to New York Yankees in 1920
Yankees want to sell seats and impressed with Babe’s home run legacy
Yankees break league attendance record by 1920 and win American League Pennant 7 times between 1920 and 1932; Yankees also win 4 World Series

13. Pitching Records of the Boston Red Sox 1915-1918
The Statistics
Pitching Records of the Boston Red Sox
Wins
Losses
Wins/(Wins + Losses)
Foster 41 22
0.651
Shore 48 34
0.585
Leonard 57 42
0.576
Mays 67 40
0.626
Ruth 78
0.661
Total
291
178
0.620

14. Hitting Records of the Boston Red Sox 1918-1919
At Bats
Hits
Batting Ave
Home Runs
Runs Batted In
Team
6,647
1,789
0.269 46
754
Ruth
749
234
0.313 40
180
Ruth/
0.113
0.131 --
0.87
0.24

15. Hitting Records of the New York Yankees 1920-1924
At Bats
Hits
Batting Average
Home Runs
Runs Batted In
Team
21,891
6,655
0.304
516
3,337
Ruth
2,455
908
0.370
235
659
Ruth/
0.112
0.136 --
0.455
0.197

16. Pitching Records of the New York Yankees 1920-1924
Wins
Losses
Wins/(Wins + Losses)
Mays 66 44
0.600
Shawkey 90 59
0.604
Hoyt 73 47
0.608
Bush 62 38
0.620
Jones 43 27
0.614
Pennock 40 15
0.727
Quinn 26 17
0.605
Collins 25 13
0.658
Total
425
260

17. What was Babe’s Comparative Advantage?
Ruth’s comparative advantage was contingent on how substitutes for him contributed to the team’s win ratio
Yankees had a strong pitching staff; didn’t need Ruth
Ruth had a comparative advantage as a hitter for the Yankees because they had a stronger pitching staff.

18. New York could show off Ruth’s talents unlike the Red Sox
Attendance and receipts increased
As a hitter, Ruth helped the Yankees achieve the possible win ratio for their team
Comparative advantage explains why Babe Ruth, the best pitcher in the American League in the late 1920s, specialized in hitting home runs after Boston traded him to the New York Yankees.

19. Summary Answer the following questions?
What would have been the Yankees' opportunity cost of using Babe Ruth as a pitcher? Note: A pitcher does not usually pitch in every game and hence, will not be in the batter lineup every game.
If the Yankees had had a poor pitching staff, in which position(s) would Babe Ruth have a comparative advantage?