Think… Should the U.S. trade with people and businesses in other countries, or would it be better for people in the U.S. to make everything they consume for themselves?

Why Trade?

Round 1 – Step 1 Take one card, but don’t show your card to others in the group! Assess how happy you are with the item on your card; on the piece of paper provided, rank your satisfaction on a scale of 1 (lowest/worst) to 5 (highest/best)

Round 1 – Step 2 Now you may show others in your group what g/s you have and may trade if you would like Rate the items you have now, after trading or not, using the scale from 1 to 5 again

Round 1 - Recap How many of you were happier after trading?

Round 2 – Step 1 You may trade with any of the students in the class Visual 2 will show you what items are available in other groups – you are not required to trade!

Practice Problems What is the opportunity cost for each person, each product? Who has the comparative advantage in each product and how do you know? Who should make what?

Round 2 – Step 2 Rate the items you have now, after trading or not, using the scale from 1 to 5 again

Round 2 – Recap Did more people trade in Round 1 or Round 2? Why did this occur? Were you required to trade? Did anyone have a higher rating in Round 1 or 2 without trading? If so, how could this happen?

Recap Cont’d… The number of items to trade remained the same in each round, but overall people seemed to be happier with the items they had at the end of Round 2 than at the end of Round 1. How could this be?

Why Trade? Trade is the voluntary exchange of g/s When expected gains outweigh expected costs, people trade Benefits > Costs Have you ever tried to cut your own hair (or know someone who did)? What resulted?

Comparative Advantage Comparative Advantage = fundamental reason to trade Countries specialize in production of g/s that can be produced at lower opportunity cost than a trade partner would have to pay to produce the same g/s Causes both production and consumption increase For example, who has the comparative advantage in factory produced consumer goods like toys, clothes, or phones: USA or China? How do you know? Opportunity cost = highest valued alternative that is given up when a choice is made (remember our sleep, good grades, or fun triangle) Pizza Shop Activity

Are you picking up what was put down? Use the terms below in a 3-4 sentences statement that summarizes what we covered yesterday: Trade, Cost, Benefit, Specialization, Comparative Advantage, Opportunity Cost

Comparative Advantage Practice In your assigned group, create your own comparative advantage word problem. Follow the structure of the Pizza Shop Activity and create a separate answer key. Be ready to trade with your classmates in ten minutes!

Absolute Advantage Absolute Advantage = when a worker in one country can produce more of a good than a worker in another country given the same amount of resources Cell Phone / Microwave Activity Part 1 Country A had the absolute advantage in producing both cell phones and microwaves – Should they bother trading with Country B? If so, what should they focus on producing? Cell Phone / Microwave Activity Part 2

Before Trade: Country A producing at combo B Country B producing at Combo D How much would total output of cell phones increase if these two countries specialize and trade? How much would total output of microwaves increase if these two countries specialize and trade?

What is the major difference between comparative advantage and absolute advantage? Which is most important when deciding what a country should produce versus trade?

Visual 5: Wheat & Cheese! Which country has an absolute advantage in the production of cheese? Wheat? In the U.S. how many units of cheese does a worker give up to get one more unit of wheat? (opportunity cost) In France how many units of cheese does a worker give up to get one more unit of wheat? (opportunity cost) In the U.S. how many units of wheat does a worker give up to produce one more unit of cheese? (opportunity cost) In France, how many units of wheat does a worker give up to produce one more unit of cheese? (opporunity cost)

Visual 5: Wheat and Cheese! Which country has the comparative advantage in the production of wheat? Explain. Which country has a comparative advantage in the production of cheese? Explain.

Visual 5: Wheat & Cheese! At combination B what is the total output of wheat produced by the two countries? If the United States decides to put all its workers into the production of wheat, how many additional bushels of wheat would be produced? How many pounds of cheese would be lost? If France decides to put all its workers into the production of cheese, how many additional pounds of cheese would be produced? How many bushels of wheat would be lost? How much would the total output of cheese increase if these two countries specialize and trade? How much would the total output of wheat increase if these two countries specialize and trade?

What conclusion can you draw??? Visual 5: Wheat & Cheese! What conclusion can you draw???

Main Ideas… People voluntarily exchange g/s because they expect to be better off after the exchange Voluntary exchange among different countries gives broader range of choices in buying g/s Like trade among individuals within one country, international trade promotes specialization and division of labor and increases output and consumption Individuals and nations have a comparative advantage in the production of g/s if they can produce a product at a lower opp. Cost than other individuals/nations

Carousel Reflection Why do individuals, organizations, and nations trade? How does overall level of satisfaction increase when people trade? How does specialization and trade affect production and consumption? What is absolute advantage? What is comparative advantage?

Activity 4: Are you Pickin’ Up What I’m Puttin Down?! Florida and Idaho both grow potatoes and tomatoes. One worker in Florida working 1 day can produce 15 pounds of potatoes or 60 pounds of tomatoes. In Idaho one worker can produce 10 pounds of potatoes or 20 pounds of tomatoes in a day. If Florida and Idaho specialize and trade, what should Florida produce? What should Idaho produce? Why? How would specialization and trade affect total production of tomatoes and potatoes?

Reevaluate: Did you change your mind? Why or why not? Should the U.S. trade with people and businesses in other countries, or would it be better for people in the U.S. to make everything they consume for themselves?