International trade: Gains from Trade
(Is Free Trade a Win-win Proposal?)
To familiarise students with the theoretical foundation of trade, this lesson plan is prepared to help teachers introduce the concept of
gains from trade through voluntary exchanges and clarify misconceptions among students concerning trade. The lesson is designed with
active student learning elements. It was tested in a school with impressive student responses.
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Lesson Plan for S5 Economics
Time required: 80 minutes
Topic: Gains from trade
(Is Free Trade a Win-win Proposal?)
Objectives:
After the lesson, students will be able to:
1. verbalise their reason(s) for participating in trade.
2. explain the welfare effects of voluntary trade to a trader.
3. explain why no traders in a voluntary exchange would lose.
Pre-requisite knowledge: meaning of trade, opportunity cost
Materials needed
1. One record sheet for each student in the class.
2. One plastic bag for each student in the class. Each contains different combinations of small items (pencils, stickers, candies, teacher-made
encouragement cards, etc.) and would be of different values to different students. Before the class, distribute the items unevenly in the bags.
Try to create obvious contrasts (in terms of nature of goods) among the contents of the bags.
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Steps
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Student activities
Teacher discusses the following
situation with the class:
Imagine that your classmate, Johnny,
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goes to the tuck shop to buy a bowl of
fish balls and he gives the tuck shop
owner $5
Teacher asks students: “Does anyone
gain? Does anyone lose?”
Target content/skills
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Students should be able to tell the giving-up of
purchasing power and in return the enjoyment
from eating the fish balls from Johnny’s angle,
and the forgoing of a bowl of fish balls but the
gaining of $5 from the tuck shop owner’s angle.
For both of them, the gains were greater than
the losses. If this was not true, Johnny would
have kept the money and the tuck shop owner
would not have offered a bowl of fish balls at a
price of $5/bowl.
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Remarks
both parties
simultaneously gained
something and gave up
something
to the buyer, the value of
goods obtained should be
larger than the value of
goods given up (in a
voluntary exchange)
students should be able to
see the subtle importance
of “voluntary” in
day-to-day exchanges
students experienced
“putting oneself in
another’s shoes” while
responding to the
question
2. Teacher asks the class, “Why do
people trade?”
Teacher helps to compile a list of
Students suggest different reasons for trade.
Students have to find evidence to support or
reject ideas/hypotheses through the activity.
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students give suggestions
on reasons for trade,
seeing how these ideas
Teacher should
not reject any
suggestions.
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answers on the blackboard.
(Teacher creates a set/focus for
students before the class activity.)
are considered as
‘untested’ or as working
hypotheses
Every suggestion
should be put on
blackboard (with
teacher
refinement if
necessary) to
increase students
ownership.
3. Teacher invites students to participate
in a trade activity.
4. Teacher distributes a record sheet and
a bag of small items for each student.
Teacher asks students to examine the
contents and fill the first part of the
record sheet.
TRADING ROUND 1
5. Teacher divides the class into two
groups, separated by some physical
barriers if possible. Students can now
trade within their group. There is no
other restriction. They may exchange
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to explore the reasons
why people,
organizations and nations
trade
Students have to assign a monetary value to
their own bag of items.
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student gives a valuation
to the bundle of goods in
his/her possession
Students have to participate and communicate
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students experience
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making decisions
involving trade and
negotiations
discovering opportunities
in this activity. Students’ active involvements
would bring fun. Learning would be authentic
with creation of new meaning.
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any or all of the contents of their bags
with other Ss. They may also choose
not to participate in any trade.
(5 to 10 minutes)
6. After the first trading round is
completed, teacher asks students to
check the content of their bags and
fill the second part of the record
sheet.
to trade through
observing another
classmate’s endowment
and matching this
information with relevant
preferences
Teacher asks students to assign monetary value
to the resulting bundle of goods.
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valuation of the new
bundle of goods after
trade
students should be able to
‘feel’ the increase in the
value of the bundle
through trade (successive
new bundles increasingly
match his/her
preferences)
Debriefing (1)
Teacher asks the following questions:
(a) How many students have traded?
Most of them would have traded. Cases of “no
trade” might happen.
(b) Teacher tally the number of times
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exceptions (i.e. no trade)
In one of our
are usually due to having
exceptionally ‘good’ or
‘poor’ bundles
trials, a student
was able to
improve his
bundle of items
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students traded on the blackboard.
(c) Why did they decide to trade?
(d) Teacher asks some of the students at
what point they decided to stop
trading and why.
Some may be able to say that they bought the
items they liked, and traded away those they did
not like. If time permits, the teacher could invite
students to suggest the differences in value of
trade in general makes
students better off,
provided that they make
their offers and decisions
the goods they gave up and those they obtained
in return.
according to their
preferences/evaluation
Some students may be able to see that they
stopped because they saw no further
opportunities to gain from trade when they
examined their own bundle and the goods of
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other classmates.
(e) How many are better off as a result of
trading? How many think that their
bags of goods had a higher value after
trade?
trade can bring greater
value to a consumer from
a better matching of
goods with preferences
Cases of no
improvement or
even of less value
than at the
starting position
Most would report a more satisfying position
than before.
Teacher should help students see the key to this
observation – the voluntary nature of the
exchanges negotiated and realised brings an
increase in value to individual traders.
(f) Teacher asks those who reported no
Teacher may need to help students to see that
from three pieces
of candy to a mix
of goods and two
pieces of candy in
his final bundle.
may occur.
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sometimes, exchanges
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gains to explain why they felt that
way.
this may arise as a result of poor estimation of
the value of the other classmates’ items offered
for trade. At times, peer relationship will enter
into the picture (to accept trade for friendship).
(g) Teacher asks students who traded
Students should be able to say why they would
more than once for their reasons.
(h) How trade restrictions affect trading
decisions?
involve ‘implicit’ values
such as friendship
want to trade more to improve the value of their
bundle through exploiting further trading
opportunities.
The fact that there were unexploited
opportunities for gains from trade in other
groups should be obvious to students.
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if barriers exist, this
limits the possibilities of
gain from trade
Smuggling and
illegal trade did
occur in our trial
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there is an incentive for
people to overcome
restrictions, in order to
reap the benefits of freer
trade
in school.
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gain from trade with
removal of barriers
TRADING ROUND 2
7. Teacher now allows one more round
of trading without any restrictions:
students may trade any item with any
This is to let students experience further gains
from trade after the removal of barriers.
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student in the room if they choose to
do so. (5 to 10 minutes for trading)
8. After the trading round is completed,
Teacher asks the students to check the
content of their bags and fill in the
third part of the record sheet.
De-briefing (2)
The following questions are put to the
students:
(a) How many students have traded in
this round?
Most students would have traded.
(b) How did the removal of trade
restrictions affect trading?
Students should be able to cite the benefits of
having more trade opportunities.
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freer trade allows more
opportunities for people
to benefit from trade
(c) Why did you trade?
Students should be able to say that they traded
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reinforcement of key
(d) Of those who traded, how many are
better off as a result of more trade?
to obtain a benefit.
Most would report positive gain.
concepts among students
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(e) Some students had more items and
more valuable items to trade than
others, just like some countries in the
world. If you were one of the
students that have only a few items,
were you able to trade?
Some students might be ‘caught’ in this poverty
scenario. Given effort, they can still improve
their position through trade. The key is whether
the effort to exhaust all the opportunities for
gain is well-spent and the availability of
relevant information.
(f) Did any "poor students" trade with
"rich students"?
Mutually beneficial trade can still take place
between the people in ‘wealthy’ and ‘poor’
countries.
(g) Teacher asks students to cite some
examples of trade that occur between
Trial in school did
give rise to this
situation.
The following are some possible examples:
-- Hong Kong, Singapore and some wealthy
the ‘rich’ and ‘poorer’ regions.
Middle-east countries employ domestic
helpers from Philippines and Indonesia.
-- The United States imports a large amount of
tomatoes from Mexico.
-- The United States employs Indian computer
programmers.
(h) Was everyone happy with his or her
trading?
This activity tries to illustrate that voluntary
exchange brings benefits. Individual student
may find himself or herself in a situation where
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opportunity to gain through trade is absent e.g.
the goods in the bag are not wanted by other
students. At times, a student may find that
he/she has no interest in the goods of others.
The failure of negotiating a mutually agreeable
terms of trade also enters into the picture.
(i) Did your trade experiences support
hypotheses about why people trade?
Students should be able to rewrite their
ideas/hypotheses (on blackboard) about trade to
reflect what they have mastered in this activity.
The use of plastic
bag in this
activity is
designed to let
students easily
see what goods
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(j) What conclusions can you draw from
this activity?
The fact that voluntary exchange can bring
mutual benefits should be reiterated.
voluntary exchanges are
beneficial to the trading
parties involved
there are no losers in a
voluntary exchange
freer trade can bring
their classmates
own. This lowers
the cost of
knowing the
opportunities for
gain through
trade. The use of
more opportunities for
mutually beneficial trade
skills in observing,
communicating,
explaining one’s requests
etc. are practised in this
non-transparent
bags would bring
in other factors
and could be
interesting in
some
activity
student/class
settings.
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Conclusion
9. Summarise the lesson by asking
students to discuss how the trading
sessions resembled trading in the real
world. Some differences are
obvious: Students did not exchange
money and they did not have to work,
i.e., incur production costs to get the
items they traded.
Compare this session with the
tuck-shop scenario at the beginning
of the lesson and notice that there are
many similarities. Teacher may
wish to point out that an idea
underlying free trade is that different
people place different values on
different goods. People tend to give
up the items they value less and
exchange for item they value more.
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N.B. The design of this lesson is inspired by and adapted from the lesson plan “Why People Trade” published by the National Council on
Economic Education (USA).
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