Chapter 1
1. Give one example of a sports issue that illustrates a concept from industrial organization,
public finance and labor economics.
Answer: In the NFL, it is widely believed that on any given Sunday any given team can
beat any other team. This illustrates the concept of competitive balance as it
pertains to industrial organization (which studies market structure and balance
among competing firms). Public financing of sports stadiums and arenas is the
most prominent issue in sports relating to public finance. Topics ranging from
labor disputes and collective bargaining agreements to free agency and player
salaries all relate to labor economics.
2. How does economics differ from the physical sciences?
Answer: Unlike the physical sciences, many experiments in economics are physically or
legally impossible, while others are too expensive to perform. Thus, economics
relies more on theory and observation and less on performing laboratory
experiments to understand the reality that surrounds us.
3. According to the principle of comparative advantage Charles Woodson plays
defensive back rather than receiver for the Green Bay Packers because:
(a) he plays defensive back better than he plays receiver.
(b) his advantage as a defensive back exceeds his advantage as a receiver.
(c) he is the best defensive back on the team.
(d) the other receivers on the team are better than he is.
Answer: (b) Comparative advantage states that nations or individuals should specialize in
the activity in which they are relatively best. Woodson may be the best
receiver on the team, but if he is only slightly better than the other receivers
while he is much better than the other defensive backs (and playing both
positions is not possible), then the team is better off having him play
defensive back.
4. Tom holds the world speed record in typing. Comparative advantage leads you to expect:
(a) Tom has a comparative advantage in typing.
(b) Tom may hire another person to do his typing.
(c) Tom will not hire another person to do his typing.
(d) Both (a) and (c).
Answer: (b) Tom has an absolute advantage in typing but does not necessarily have a
comparative advantage in typing. Trade is based on comparative advantage
, not absolute advantage. If this is Tom Brady we are talking about, he will
almost certainly concentrate on playing quarterback not on typing.
5. If the following numbers represent the ranking from 0 to 100 (with 100 being the
best) of the following 2 boxers in two categories, what can be said based on the data?
Offense Defense
Mayweather 85 96
Pacquiao 80 75
a. Pacquiao is the better all time pound-for-pound candidate.
b. Mayweather has a comparative advantage in defense, Pacquiao has a comparative
advantage in offense.
c. Mayweather has a comparative advantage in offense, Pacquiao has a comparative
advantage in defense.
d. Pacquiao has an absolute advantage in offense.
,Answer b. Although Mayweather is the better boxer on both offense and defense (that is, he
has an absolute advantage in both offense and defense), he has a comparative advantage in
defense, as he exceeds Pacquiao by 21 percentage points in that category and by only 5
percentage points in offense.
6. True or false: the number of runs sacrificed (that is “given-up) by moving Babe Ruth from
pitcher to outfield were greater than the number of runs Ruth produced as a position
player.
a. True.
b. False.
Answer b. False. The net increase in runs sacrificed by moving Ruth from pitcher to
outfield were 9.94 per season, while the number of runs Ruth produced as a position player
were 29 per season.
7. Opportunity cost:
a. Can never be measured in monetary terms.
b. Are $10,000 per year.
c. Represent the value of your next best alternative.
d. Are not considered a “real” cost by economists.
Answer c. Opportunity costs are measured by what you had to give up to get something
else. For example, the student choosing to go to college full time rather than work full time
out of college incurs opportunity costs of what they would have been able to otherwise
make in full time employment.
8. An athlete who is both the best football and baseball player on their High School team is
said to have a(n)______________________both sports.
, a. Absolute advantage in.
b. Comparative advantage in.
c. Holistic advantage in.
d. Knack for.
Answer: a. One who is better at both sports is said to have an absolute advantage in both
sports on their respective teams (much like Babe Ruth was both the best pitcher and
outfielder with the Boston Red Sox in the 1910s.
9. Which of the following is not an economics sub-discipline typically applied to sports
economics?
a. Industrial organization.
b. Public finance.
c. Labor economics.
d. Environmental economics.
Answer d. All but environmental economics have direct applications to sports, as noted in
the Introduction to Chapter One.
10. A professional athlete who is the best both at playing Major League Baseball and
accountancy would find it in their best interest to hire an accountant to do their taxes, this
concept illustrates the principle of:
a. Absolute advantage.
1. Give one example of a sports issue that illustrates a concept from industrial organization,
public finance and labor economics.
Answer: In the NFL, it is widely believed that on any given Sunday any given team can
beat any other team. This illustrates the concept of competitive balance as it
pertains to industrial organization (which studies market structure and balance
among competing firms). Public financing of sports stadiums and arenas is the
most prominent issue in sports relating to public finance. Topics ranging from
labor disputes and collective bargaining agreements to free agency and player
salaries all relate to labor economics.
2. How does economics differ from the physical sciences?
Answer: Unlike the physical sciences, many experiments in economics are physically or
legally impossible, while others are too expensive to perform. Thus, economics
relies more on theory and observation and less on performing laboratory
experiments to understand the reality that surrounds us.
3. According to the principle of comparative advantage Charles Woodson plays
defensive back rather than receiver for the Green Bay Packers because:
(a) he plays defensive back better than he plays receiver.
(b) his advantage as a defensive back exceeds his advantage as a receiver.
(c) he is the best defensive back on the team.
(d) the other receivers on the team are better than he is.
Answer: (b) Comparative advantage states that nations or individuals should specialize in
the activity in which they are relatively best. Woodson may be the best
receiver on the team, but if he is only slightly better than the other receivers
while he is much better than the other defensive backs (and playing both
positions is not possible), then the team is better off having him play
defensive back.
4. Tom holds the world speed record in typing. Comparative advantage leads you to expect:
(a) Tom has a comparative advantage in typing.
(b) Tom may hire another person to do his typing.
(c) Tom will not hire another person to do his typing.
(d) Both (a) and (c).
Answer: (b) Tom has an absolute advantage in typing but does not necessarily have a
comparative advantage in typing. Trade is based on comparative advantage
, not absolute advantage. If this is Tom Brady we are talking about, he will
almost certainly concentrate on playing quarterback not on typing.
5. If the following numbers represent the ranking from 0 to 100 (with 100 being the
best) of the following 2 boxers in two categories, what can be said based on the data?
Offense Defense
Mayweather 85 96
Pacquiao 80 75
a. Pacquiao is the better all time pound-for-pound candidate.
b. Mayweather has a comparative advantage in defense, Pacquiao has a comparative
advantage in offense.
c. Mayweather has a comparative advantage in offense, Pacquiao has a comparative
advantage in defense.
d. Pacquiao has an absolute advantage in offense.
,Answer b. Although Mayweather is the better boxer on both offense and defense (that is, he
has an absolute advantage in both offense and defense), he has a comparative advantage in
defense, as he exceeds Pacquiao by 21 percentage points in that category and by only 5
percentage points in offense.
6. True or false: the number of runs sacrificed (that is “given-up) by moving Babe Ruth from
pitcher to outfield were greater than the number of runs Ruth produced as a position
player.
a. True.
b. False.
Answer b. False. The net increase in runs sacrificed by moving Ruth from pitcher to
outfield were 9.94 per season, while the number of runs Ruth produced as a position player
were 29 per season.
7. Opportunity cost:
a. Can never be measured in monetary terms.
b. Are $10,000 per year.
c. Represent the value of your next best alternative.
d. Are not considered a “real” cost by economists.
Answer c. Opportunity costs are measured by what you had to give up to get something
else. For example, the student choosing to go to college full time rather than work full time
out of college incurs opportunity costs of what they would have been able to otherwise
make in full time employment.
8. An athlete who is both the best football and baseball player on their High School team is
said to have a(n)______________________both sports.
, a. Absolute advantage in.
b. Comparative advantage in.
c. Holistic advantage in.
d. Knack for.
Answer: a. One who is better at both sports is said to have an absolute advantage in both
sports on their respective teams (much like Babe Ruth was both the best pitcher and
outfielder with the Boston Red Sox in the 1910s.
9. Which of the following is not an economics sub-discipline typically applied to sports
economics?
a. Industrial organization.
b. Public finance.
c. Labor economics.
d. Environmental economics.
Answer d. All but environmental economics have direct applications to sports, as noted in
the Introduction to Chapter One.
10. A professional athlete who is the best both at playing Major League Baseball and
accountancy would find it in their best interest to hire an accountant to do their taxes, this
concept illustrates the principle of:
a. Absolute advantage.
