Everyday countries trade their goods because they have the comparative advantage in making that particular good. In this lesson, you will read through an interactive story problem to learn about trade and specialization and the outcomes they have on the world.

### STUDENTS WILL

• Use the concept of comparative advantage to explain why people in a given country rely on specialization and trade.

### INTRODUCTION

Every day, people from various countries trade for goods and services with people from other countries. People trade particular goods because they have the comparative advantage in making those goods. In this lesson, you will read through an interactive story problem to learn about trade, specialization, and the worldwide effects of trade.

### PROCESS

Have your students read the story below. They can click on the words in BOLD to find out their definitions. There will be questions throughout the story that your students may answer. You might have them record their answers and when they have completed the story have them turn in their responses.

Question #1: On your first day you only sell 15 glasses of lemonade at 25 cents per glass. How much income did you earn? [\$3.75]

Question #2: You also decided that you need to charge \$.50 for each cookie in order to keep your lemonade at \$.25 a cup, even though your neighbor was charging only \$.30 for her cookies. At the end of your second day of sales, this is what you had sold: 32 glasses of lemonade plus 6 cookies How much income did you earn? [\$11.00]

Question #3: China is a land with one billion people. That is one-third of the world's population. Therefore China has an abundance of LABOR. With all of the labor that China has, what do you think China is able to specialize in? [factory/production line work is the best answer.]

Question #4: Japan is an island off the coast of South Korea, China, and Russia in the North Pacific Ocean and Sea of Japan. There is not a lot of land space for this populated country of 126 million. However, Japan has sought to make the best use it can of its labor resources by providing Japanese workers with a good education. In turn what do you think Japan uses its resources for? [Manufacturing electronics/cars is the correct answer.]

Question #5: The United States is a unique country in that it is a world super power. It also has the ability to produce and specialize in making many things because people who live in the United States come from all over the world to live here. Generally, businesses and worker in the United States are moving away from manufacturing the simple things of life. like clothes. What do you think is a comparative advantage of the U.S.? [Technology-developing and manufacturing is the correct answer.]

Question #6: Did you know that major U.S. exports include motor vehicles, aircraft, food, iron, and steel products, electric, and electronic equipment, industrial and power-generated machinery, chemical and consumer goods? With this in mind, now what do you think is a comparative advantage in the United States? [Research is the correct answer]

Question #7: Spain is a nation with a land mass the size of Texas. Spain's population is only 40 million people and Spain's land is rich with resources. What do you think Spain's comparative advantage is? [Farming/agriculture is the correct answer.]

### ASSESSMENT ACTIVITY

Have your students take this short online quiz to see what they have learned.

If you would rather have your students take the quiz offline here is a printable copy of the quiz.

1. Why is China able to specialize in factory and production work? [China is a land with one billion people. That is one-third of the world's population. Therefore China has an abundance of labor.]

2. Name two brands of Japanese electronics that you know.[Two brands of Japanese electronics are electronics, cars, etc.]

3. How does the US Government protect the steel industry in the United States?[answers may vary]

4. Do the people of Spain live to work or do they work to live? [answers may vary]

5. Give the definition of comparative advantage. [Competitive advantage is the ability of individuals (or firms or countries) to produce goods at a lower opportunity cost than others can produce the same good.]

Choose one of the four choices below to complete:

1. Have your students do a report on a country of your choice to find out what its comparative advantage is. Find out if people in this country are involved in free trade or if they have any free trade agreements.
2. Have your students use the World Factbook web site find and list several of the Exports - commodities from five different countries. Use the activity below to record your answers.

1. Identify a country and list its Exports- commodities.
[Answers will vary.]

2. Identify a second country and list its Exports- commodities.
[Answers will vary.]

3. Identify a third country and list its Exports- commodities.
[Answers will vary.]

4. Identify a fourth country and list its Exports- commodities.
[Answers will vary.]

5. Identify a fifth country and list its Exports- commodities.
[Answers will vary.]

3. Have your students use the web sites below to write a short paper answering the following questions
The World Trade Organization
Socialism Today
• Briefly describe the purpose of the World Trade Organization (WTO).
• Find out why China has wanted to join the WTO for so long.
• What reasons did WTO have to keep China out?

Have your students go to the library and check out "The Choice: A Fable of Free Trade and Protectionism" by Russell Roberts, Washington University in Saint Louis. Read the book and then write a paper on your thoughts on the subject.

### CONCLUSION

In this story, you represented a person from one country and your neighbor represented a person from another country. You are now able to understand that if people from each country specialized in the product or products for which they have the comparative advantage, they they could trade with people from another country where the comparative advantage is different and the world would become more efficient.

### EXTENSION ACTIVITY

To help students understand what NAFTA is, go to Encarta MSN , and then make a list of other countries versions of NAFTA, i.e. the European Union or the FTAA. See how many you can find! Think about why all of these countries are developing treaties amongst each other to trade freely across each other borders.

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