SPECIALIZATION & EXCHANGE LESSON PLAN
Our lesson plan consists of two parts and an assessment piece.
Part 1: Gains from Trade Demonstration
The Free Trade Experiment will be used in class after students have had an initial introduction to the ideas of comparative advantage, specialization and exchange. In the experiment, students are given an initial allotment of assorted candy. They are asked to place a personal monetary value on the candy: how much is it worth to them, or how much would they be willing to pay for the candy. These values are recorded.
They then undergo three different “trade scenarios.” In the first, students are free to trade within their “row.” Once trading has ceased, they again put a value on their new assortment of candy. These values are recorded.
In the second trade scenario, students are allowed to trade with anyone in the room if he or she chooses, however, each trade outside of the row must first be approved by the instructor who will “tax” the trade by taking some of the candy away. Once trading has ceased, students are asked to place a value on their new assortment. The values are recorded.
In the last trade scenario, students can trade with anyone in the room and there is no tax placed on the trade nor do students need to seek instructor approval. Students then record the value of their final assortment.
The experiment is then followed with a few questions to get at the important points:
1) Report the amount of money you would have been willing to pay to consume or keep the candy you had at each stage.
Trade Amount willing to pay
Initial allotment (1)
Trade A (2)
Trade B (3)
Trade C (4)
The instructor will present these values in the following class to demonstrate that although the actual amount of candy has not changed, the value placed on it has increased on average. This illustrates a net gain from trade.
2) In this experiment we are mimicking situations in “the real world”.
a) Trade A represents, or is like:
b) Trade B represents, or is like:
c) Trade C represents, or is like:
This question challenges the student to recognize that the value they placed on their candy allotment increased as trade opportunities increased. What does that mean about the value of international trade?
3) In a sentence or two, name two things that were demonstrated, or that you learned, from the trading experiment.
This question simply challenges the student to acknowledge any aspect of the trade scenario that they observed, i.e. “making deals”, willingness to trade, the impact of preferences, etc.
Part 2: Mini Case Studies on Free Trade (Winners and Losers Demonstration)
Here we will present several more complicated cases in which there is an obvious “adjustment” due to trade. This will contrast to the previous experiment where, presumably, students will observer there is only one, positive outcome from trade: a better, more valuable, assortment of candy.
Here is one example:
Steel Tariff Case Study: The Adjustment Issue
In November of 2002, the Bush administration proposed a plan to eliminate all tariffs on manufactured goods among World Trade Organization members by 2015. Below are excerpts from one of the articles about this proposal:
“Leading the News: U.S. Proposal Seeks Tariff Cuts For WTO Members”, Neil King Jr., The Wall Street Journal, 11/26/2002
The Bush administration will offer a bold proposal to eliminate by 2015 all tariffs on manufactured goods among World Trade Organization members, an idea sure to stir opposition from big developing countries such as India and Brazil. The proposal, to be put forward today by U.S. Trade Representative Robert Zoellick and Commerce Secretary Donald Evans, reflects the interests of a large part of the U.S. manufacturing sector, which wants to beat down high tariffs in other parts of the world. It will face serious fire, however, from some very vocal and hard-hit U.S. manufacturers, including textile and footwear makers and parts of the steel industry.
In the complex give and take of global-trade talks, the U.S. proposal will automatically put huge pressure on lesser developed countries, which typically have far higher tariffs on such goods than the U.S. or Europe. Countries such as India, Pakistan, Indonesia and Brazil rely on high tariffs to protect many parts of their economy from foreign competition. For dozens of other smaller countries, tariffs provide the largest share of government revenues.
There is a clear inducement for developing countries to play along. U.S. textile and clothing tariffs now average around 20%. The proposal would slash that to at least 8% by 2010, further opening a market that already is set to be freed of import quotas by 2005. U.S. manufacturers, meanwhile, would get a leg up in many parts of the world where tariffs are now much higher than in the U.S.
a) Identify two different groups that will benefit from this proposal to reduce tariffs, and briefly explain why.
b) Identify two different groups that will lose from this proposal to reduce tariffs, and briefly explain why.
c) Evaluate this quote from the above article: “The study concludes that a zero-tariff push would create "the grand political bargain needed to beat powerful protectionist interests in both rich and poor countries."
The intent of the case studies is to help students see that there are “gainers” and “losers” in the trade process. This acknowledges their concern about job loss (the most common hesitation about free trade), while asking them to also see that there are gains which balance those losses out. In addition, the political aspect of government intervention into trade is introduced.
The case studies will be presented as small group activities where members will read and discuss the cases. The instructor will provide questions for the groups to answer which will encourage them to recognize the different perspectives given in the cases.
Assessment
We decided to assess the lessons in part by using pre and post questions. Assessment will occur in both a class with traditional lessons, and in a class with the LSP lessons. This will help us evaluate whether the LSP lessons improve achievement of the learning goal.
We plan on having several levels of questions. After the first lesson we will use basic questions on trade such as the following:
Exhibit 5: Potatoes and wheat output (tons per day)
Country Potatoes Wheat
United States 4 2
Ireland 3 1
1. In Exhibit 5, the United States has an absolute advantage in producing:
a. potatoes.
b. wheat.
c. both wheat and potatoes.
d. neither wheat nor potatoes.
2. In Exhibit 5, the opportunity cost of wheat is:
a. 1/2 ton of potatoes in the United States and 1/3 ton of potatoes in Ireland.
b. 2 tons of potatoes in the United States and 3 tons of potatoes in Ireland.
c. 2 tons of potatoes in the United States and 1 ton of potatoes in Ireland.
d. 4 tons of potatoes in the United States and 3 tons of potatoes in Ireland.
3. If the countries in Exhibit 5 follow the principle of comparative advantage, the United States should
a. buy all of its potatoes from Ireland.
b. buy all of its wheat from Ireland.
c. buy all of its potatoes and wheat from Ireland.
d. produce both potatoes and wheat and not trade with Ireland.
4. What terms of trade would be beneficial to both countries in Exhibit 5?
a. 1 ton of wheat trades for 3 tons of potatoes.
b. 1 ton of wheat trades for 2 tons of potatoes.
c. 1 ton of wheat trades for 1½ tons of potatoes.
d. 1 ton of wheat trades for 2⅓ tons of potatoes.
5. Which of the following is true when countries specialize according to their comparative advantage, and then trade?
a. It is possible to increase world output of all goods traded.
b. No one will be harmed by international trade.
c. One country is likely to gain from trade, while others will lose.
d. It is possible to increase output of all products in each county.
6. When economists illustrate gains from specialization and trade using a production possibilities model, what assumptions are made?
a. Opportunity costs are different between producers.
b. All land, labor and capital is fully employed when producers specialize and trade.
c. Producers are able to negotiate terms of trade that are beneficial to both.
d. All of the above
e. Only a. and c. are correct.
The first four questions test the “mechanics” of gains from specialization and trade. The last two questions get at the larger ideas we want to consider: 1) the big idea of "gains from trade"...hitting on gain for country vs. world, incentive to trade, and recognizing that there is some adjustment (sometimes someone feels a negative impact), and 2) addressing the assumptions we make in a production possibilities model when we make the argument for gains from trade. This came up as we considered that the "adjustment" made in an economy from a trade situation assumes a movement back to a point on the production possibilities curve. The benefit of underscoring this detail is that it sets up the discussion about job tradeoffs: although some people may lose jobs, other jobs are created. In turn it begins to address the issue that we think students have a hard time with--that they want the benefits that come with free trade (lower prices) but have a hard time accepting a family member's job loss because of trade. Therefore, they view the concept of free trade as something positive, but the practice as something negative. (The choices in this multiple choice question allow the student to pick only the obviously correct answers.)
Later, after the second lesson, we plan to have deep-thinking questions that will help students think about trade at the international level including both the production and the consumption side. This will also tie in with current topics like outsourcing.
Contact: Lisa Giddings
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