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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?
Be ready to share!
Today’s LEQ: Why do people specialize and
trade?
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
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)
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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

How many of you were happier after trading?
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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!
1.
2.
3.
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?

Rate the items you have now, after trading
or not, using the scale from 1 to 5 again

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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?

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?
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 = 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?
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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

Use the terms below in a 3-4 sentences
statement that summarizes what we covered
yesterday:
 Trade, Cost,
Benefit,
Specialization,
Comparative Advantage,
Opportunity Cost
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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!
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Absolute Advantage = when a worker in one
country can produce more of a good than a
worker in another country
 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

What is the major difference between
comparative advantage and absolute
advantage? Which is most important when
deciding what a country should produce
versus trade?
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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)
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Which country has the comparative
advantage in the production of wheat?
Explain.
Which country has a comparative advantage
in the production of cheese? Explain.
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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???
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
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1.
2.
3.
4.
5.
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?
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?
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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?