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CH 1 PDF

The book uses tools from three branches of economics to explain the behavior of people, teams, and leagues. A person has comparative advantage in an activity if his / her opportunity cost of that activity is lower than for other persons. Sports can be used to achieve diplomatic goals sports have their own section in the newspaper.

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VIjay S Jariwala
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151 views10 pages

CH 1 PDF

The book uses tools from three branches of economics to explain the behavior of people, teams, and leagues. A person has comparative advantage in an activity if his / her opportunity cost of that activity is lower than for other persons. Sports can be used to achieve diplomatic goals sports have their own section in the newspaper.

Uploaded by

VIjay S Jariwala
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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The Economics of Sports

FIFTH EDITION

Chapter 1

Economics and
Sports

MICHAEL A. LEEDS | PETER VON ALLMEN

The Importance of Sports


Individuals, cities, and nations can define
themselves in terms of sports
Sports can be used to achieve diplomatic goals
Sports have their own section in the newspaper
The sports industry, however, is relatively small

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-2

1.1 Text Organization


The major sections of the book use tools from
three branches of economics
Part 2 presents the industrial organization of sports
Industrial organization addresses issues of firm behavior
We will study how firms maximize profits

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-3

1.1 Text Organization (cont.)


Part 3 presents the public finance of sports
Public finance examines what goods the government
should provide and how it should finance them

Part 4 covers the labor economics of sports


Labor economics analyzes employment and wages

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-4

1.2 Babe Ruth and Comparative


Advantage
We use basic economic concepts to explain the
behavior of people, teams, and leagues
Opportunity cost is a key concept: it is the value of
the best forgone alternative
We need this concept for comparative advantage

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-5

Absolute Advantage
Absolute advantage is the ability to produce a
good or service more efficiently than anyone else
Babe Ruth started with the Red Sox
He was the best pitcher the team had
He was the best hitter the team had
Therefore, Babe Ruth had an absolute advantage in
both pitching and hitting

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-6

Comparative Advantage
No player, not even Babe Ruth, can be used as
both pitcher and hitter
The team had to decide in what role Babe Ruth
could be most useful
Where was he more dominant?

A person has comparative advantage in an


activity, compared to other persons, if his/her
opportunity cost of that activity is lower than for
other persons

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-7

Babe Ruths Comparative Advantage


Babe Ruth had comparative advantage in hitting
He was only a little better in pitching than someone
else on the team
He was much better at hitting that anyone else on
the team
The Red Sox used him as a hitter

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-8

Red Sox Benefit


Babe Ruth was the Red Sox best pitcher in 1917
(See Table 1.1)
He switched to rightfield in 1918
Both Ruth and the Red Sox benefited
Red Sox gave up ~10 more runs in 1918 than in 1917
because the replacement pitcher, Dutch Leonard, was
not as good
But they scored ~29 more runs because Ruth was better
than Tilly Walker, whom he replaced

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-9

Applying Comparative Advantage


Moving Ruth to the position where he had
comparative advantage created more runs for the
Red Sox
Runs create wins, which is the object of the game
In general, individuals and nations should develop
and specialize in their comparative advantage

Copyright 2014 Pearson Education, Inc. All rights reserved.

1-10

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