Comparative Advantages

This activity will usually be helpful for the very first part of "Introduction to Microeconomics" course, while teaching and discussing the Ricardian theory of absolute advantages vs. comparative advantages, specialization, and the reasoning behind international trade, even with very low-productive countries. The discussion could be helpful to students in all levels- undergraduate or graduate students who are introduced to the principles of economics for the first time, and could be really helpful to show how economic theory was implemented in a real life story, to improve the outcomes of a baseball team. The book and the movie are capturing and at some point even breath taking, and the students can really resonate with the story. In addition to implementation of the economic theory, the movie shows the importance of statistics in the economist's life: based on empirical analysis it is possible to analyze the situation and find the best strategy. It is much better if the students will study first the theory and graphs describing comparative advantage and will know basic concepts as marginal opportunity cost, but watching the movie could also be the first introduction to the topic, as an intuitive background for understanding the theoretical concepts.

Expected Student Learning Outcomes

This exercise should help students understand the argument of efficiency, increasing consumption possibilities under the same level of resources, by using terms of economic specialization and comparative advantage. The students will understand that choosing the alternative with the absolute advantage is not the best option, as it is the most expensive one. Alternatively, choosing the least expensive input in terms of opportunity cost is the reasonable economic choice. Students will understand that economist care about the costs of all alternatives, and above all will understand the concept of avoiding waste in production. Every production input could be helpful and contribute to the total outcome if we use it properly and use the reasoning of comparative advantages.

Information Given to Students

You were recently hired as the general manager (GM) for the Oakland baseball team. After a long series of loses and disappointments to the team owner and the fans, everyone has very high expectations of you, to change this situation and bring the team back on the winning track. You ask the team owner for a necessary increase in the budget, in order to hire some of the best and well known players in the country, but he refuses: "No extra money, you just have to work with the budget you have!". You are shocked and concerned. How are you expected to build a winning team without extra budget? The other teams (as the Boston "Red Sox") have about 5-10 times of your budget. They pay millions of dollars to the best players. You are supposed to get the same results with such low budget??? Desperate, you consider all the possible alternatives at this point:

A. To quit. This is ridiculous; no one can expect you to win that game with such a small budget.

B. To direct most of your existing budget and hire at least one "superstar" player. He has an absolute advantage, so he is the most important for winning the game. The rest of players don't matter that much.

C. To use the Ricardian theory of comparative advantages. You will hire cheap and unemployed players which no other team wants, and use them according to their relative strengths in the game (throwing, running, catching). By using the cheap alternatives you can create a replacement for one expensive superstar by combining a team of several players with specific talents.

D. To try to hire all the best players in the country for a lower compensation than is offered them by other teams. Perhaps they will agree to do that as a charity or out of a good will.

Students should be able to explain and analyse the alternatives of the GM in economics terminology. The students should be able to draw a graph and explain the economic situation in the model.

Possible questions for discussion while/ after watching the movie "Moneyball":
1. What impressed you the most in the movie "Moneyball" and how is it related to economics?
2. Give a specific example, based on the movie, for using the methodology of comparative advantages.
3. What was unique about the new management method introduced in this movie?
4. How can you implement this methodology to other aspects of life? Use a specific example, including a chart of numbers or a graph.

Any quiz about absolute advantage and comparative advantage will be good to summarize the topic

Students will watch the movie "Moneyball" (based on the book- "Moneyball: The Art of Winning an Unfair Game" by Michael Lewis. In case of short time, the students can also read the article: https://www.goodreads.com/book/show/1301.Moneyball) where a general manager of a baseball team faces a very tight budget and must reinvent his team by beating the richer ball clubs. Joining forces with economics major graduate, who constantly collects and analyses data and statistics about the players' performances, the general manager is able to rebuild a winning team by using a clear methodology of comparative advantages, according to the players' strengths and marginal opportunity costs. He is not hiring the best and most expensive players in the country as other team do, instead he is hiring the cheap and unemployed players who has a specific talent or strength, and is able to replace the production of one "superstar" player with three other cheap players.

The new methodology was so original and unique, that it was later on adopted by general managers of all big baseball teams (including the Boston Red-Sox) and completely changed the way of conventional managing of sports teams, pricing and budgeting expenses and trading players.

Before watching the film (and possibly reading the script), students will be introduced to the concept of opportunity costs and comparative advantages. The following summary paragraph will be presented to the students before watching the film (based on course text book, as in: http://www.saylor.org/books/):

"Economists say that an economy has a comparative advantage in producing a good or service if the opportunity cost of producing that good or service is lower for that economy than for any other."