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In this lesson, students will learn about the gains from trade. Students will participate in a trading game that will demonstrate that trade can make everyone better off.

KEY CONCEPTS

Exchange, Exports, Gains from Trade, Imports, Trade

STUDENTS WILL

  • Learn about trade and why countries participate in it.
  • Understand the gains available from trade.
  • Participate in an interactive trading game to illustrate that in a voluntary transaction both parties can gain.

INTRODUCTION

In this lesson students will participate in a trading game. The game is designed to demonstrate that when voluntary trade takes place, both parties benefit.  Voluntary trade allows individuals to obtain the goods and services they desire and for societies to specialize in the production of those goods and services they are most efficient at producing. Other gains to trade in the presence of such trade implies competition. This means there is a greater variety of products at lower prices for consumers. In addition, the recent Obama policy is used to increase exports as a timely motivator. As a nation, the United States engages in fairly high degree of trade with other nations, as indicated in this list of Top Ten Countries with which the U.S. Trades .  This lesson will encourage students to examine actual trade patterns between the U.S. and it's trading partners.

RESOURCES


PROCESS

gasExplain to the students that when voluntary trade takes place both parties benefit. You might use a simple example like: when you fill your car with gas, you value the gas more than the money you trade to get it and the gas station owner values the money you pay him more than the gas he gives to you. So, even in this simple example, both parties are better off because the trade took place. Another example might be the scalping of professional sports tickets outside of stadium. Clearly the person selling the tickets values the money they fetch more than attending the game; the person buying the tickets values the opportunity to go to the game more than the money they have to give up. Again, both parties are better off after the trade than they were before it.

Once you've discussed this with your class tell them that they are going to play a game to try and demonstrate this phenomenon that economists call "gains from trade". Follow these steps to play the game:

1. Put your class into groups of 8-10 students and have these groups of students sit together.

2. Print the attached gift certificate file for the students. Feel free to customize it as you see fit. Give one certificate to every student.

3. Round 1: Give the students a couple of minutes to review their gift certificate. Tell them to play the game as if they are real and could be spent. Next, ask each student to rate, from 1-10 (1=little value; 10=very valuable), how much they value the certificate they've been given. Obviously this is a difficult hypothetical question to answer but ask them to do their best.

4. Write all of the ratings on the board by student group. Add them up to find a total score. Spend a few minutes discussing why the students rated their certificate as they did. This will allow the students to get a feel for all of the certificates that are out there and available.

5. Round 2 ("U.S. trade "): Now tell the students they have 5 minutes to trade their certificate with others within their group.

6. Once the trading is done again ask each student to rate how much they value their current certificate (some will have the same others will have new ones). Again add up the total by group (the number will almost certainly be bigger).

7. Have a discussion about why the number increased. Ask students why they made trades. Use their answers to demonstrate that both parties gain from trade.

8. Round 3 ("World trade "): Lastly, play the game one more time but tell students they have 5 minutes to trade with anyone in the classroom. Again ask the students to rate their certificate value. Once again the number will likely increase.

Explain to the students that the total value of the rating increased from one round to another, representing the gains from trade. The broader range of choices made it possible to achieve gains from trade.

[NOTE: Based on the concept of voluntary trade, it should be noted that the number of rating points awarded should not go down from round to round because if trade is voluntary, then no one would engage in a trade that would make them worse off. Also, the websites linked in steps 5 and 8 can be used to introduce and incorporate the concepts of U.S. trade and exports into the activity. This presence of trade implies competition, which means there is a greater variety of products at lower prices for consumers. These resources highlight the degree of trade and exporting we engage in as a nation. Teachers can apply this information and data to the game however they see fit.]

ASSESSMENT ACTIVITY

Essay: Have students write a short journal entry about their experience with the game. Have them explain what certificate they were originally given, what trades they made and why they made these trades. Ask them to conclude whether or not their level of satisfaction was increased or decreased due to the trade in the game.

After the students have written their journal entry, ask them this question: What do economists mean when they talk about the "gains from trade"?

This notepad can be used to record and print the question.


1.  What do economists mean when they talk about the "gains from trade"?

[Economists are referring to the benefits that people derive from trading with others. By participating in voluntary exchange both parties gain more than they give up.]

CONCLUSION

Summarize what the lesson has demonstrated: when voluntary exchange or trade takes place both parties benefit. Explain to the students that the game simulated real life. When the certificates were first handed out the class had a certain level of value similar to what people might have in a society without the ability to trade with their neighbors. The second activity, where the students traded within their group, might be like trade among states in the U.S. The third activity, when the students traded within the entire class, could represent open trade with the rest of the world. Countries that trade with the entire world are wealthier and their citizens have a higher level of satisfaction because of the gains they realize from trade.

EXTENSION ACTIVITY

exportHave the students go to FTD Statistics . Ask the students how the U.S. major trade partners have changed over the last decade.

Also have the students go to FTD Statistics to find out what the U.S. exports and imports from other countries.  

What goods do we import and what goods do we export? Explain how the U.S. gains from trade with other nations.

EDUCATOR REVIEWS

  • “This is a good lesson. I have been using this for more than a year for a different topics and subjects. Thank you so much.”

    BJ, mus, WV   POSTED ON July 30, 2010

  • “The link to the USA Today article does work - http://content.usatoday.com/communities/theoval/post/2010/07/obamas-day-trade-and-exports/1 - but the link inside the article itself to the plan to increase exports is no longer available - http://news.yahoo.com/s/nm/20100707/ts_nm/us_usa_obama_trade_2. EconEdLink: Unfortunately because the article is part of Yahoo! we can not fix the link, but here is a different article explaining how Obama promises to double export growth by 2015. http://www.nytimes.com/2010/01/29/business/29trade.html”

    Lynn Warner, Newtown, PA   POSTED ON August 9, 2010

  • “Good lesson. I have used it with candy instead, but I suppose you need to be real careful with that because of such an increase in allergies.”

    Bruce, Chesterfield, VA   POSTED ON September 14, 2010

  • Review from EconEdReviews.org

    Great hands- on lesson

    “Good lesson. I have used it with candy instead, but I suppose you need to be real careful with that because of such an increase in allergies.”

    bruce f   POSTED ON September 14, 2010

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