Today's post relates to the following Keystone Economic Concepts:
2. There ain’t no such thing as a free lunch.
3. All choices have consequences.
6. Do what you do best; trade for the rest.
and
7. Economic thinking is marginal thinking.
Occasionally, students will have trouble with the difference between specialization and comparative advantage. This fact was reaffirmed for me when I was listening to an Econtalk podcast featuring a conversation between Russ Roberts and Don Boudreaux.
Specialization speaks to the idea reducing wasted resources (moving from step to step on a job); gaining skill through repetition; and eventually finding a way to apply capital to the procedure. But it fails to capture the idea of opportunity cost that is inherent in the concept of comparative advantage. The idea is that we chose an activity because of the opportunity cost - what are we giving up by producing this good or service - not necessarily because it's what we do best.
Because of recent attention on college bowl games, NFL playoffs and even college basketball in my house, the distinction between specialization and comparative advantage caused one of those "ah-ha" moments.
For any game, the coach is going to put players in a position because they are specialists. They likely have the position because they specialize - they have done the procedure many times and are very good at it. But what happens when there is an injury to a player? "You put in the back-up," might be your first response. But what if, because of previous injuries or other circumstances, there is no back up? Is the team forced to forfeit because there's no available point guard or power forward? Does the team take the loss for lack of a middle or inside linebacker for short-yardage situations? In those circumstances, you look to comparative advantage.
Of the resources (players) you have, who can move from their position with the least cost - the least loss of effectiveness? Maybe a receiver moves to defensive back because several other players can fill in on the receiver side. Maybe one of the forwards becomes a temporary shooting guard because they can make the three-pointer, leaving you adequate resources on the bench who can fill in at forward.
Does this analogy help or am I off on the wrong track? Please share your thoughts.
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