Exam (elaborations)
The Economics of Sports 5th Edition By Michael A. Leeds -Test Bank
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, Chapter 11. 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.
b. Comparative advantage.
c. Employment diversity.
d. The benefits of finishing one’s college degree.
Answer b. Even though one is better at both activities, comparative advantage is about specializing where
one has the greatest degree of advantage. Since Major League Baseball players, on average, are much
better-compensated than accountants, this individual would find it in their best interest to focus solely on
playing professional baseball.
11. Why is it that sports, despite their relative modest financial impact on an economy, receive such a
tremendous amount of media attention?
Answer: Professional sports play a “super-sized” role in the American economy because they are such an
integral part of American culture and history. The fact that corporations with much greater total financial
impact on the American economy (for example, Wal-Mart) don’t receive regular coverage in the daily
newspapers but sports do is evidence of the profound enthusiasm American’s have for their four main
team sports.
12. The most significant cost a star athlete such as Kobe Bryant (who had the opportunity to bypass
playing college basketball to go straight to the NBA) faces when choosing to attend college is:
a. Room and board.
b. Tuition.
c. Books and supplies.
d. The opportunity costs of their foregone income.
Answer: d. The sacrifice Kobe Bryant would have had to make if he opted to go to college rather than
straight into the NBA would be the multi-million annual salaries he would have had to forego during the
time he was working toward his college degree.
13. The sub-discipline of labor economics deals with:
a. Players’ human capital formation.
b. The impact teams and leagues have on players’ wages.
c. Racial discrimination in sports.
d. All of the above.
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