Trade for the Win!

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This lesson allows students to experience the benefits of trade that Adam Smith wrote about in An Inquiry into the Nature and Causes of the Wealth of Nations. 

Students participate in a trade simulation that measures the variation in benefits received (utility) in a variety of rounds from no trade to free trade.  

1. Students will participate in a trading activity to demonstrate the benefits of trade.  
2. Individual satisfaction as well as total group benefit will be calculated in the various rounds to see the benefits to trade to the involved parties.
   
   
   

1. One brown paper bag per participating student.
2. A variety of items that can be traded.  In an effort to defray teacher expense, students could be asked to bring items or the school’s parent-teacher organization could donate items.  The items can vary with age groups of students participating in the activity.  The key is to have a variety of different items to satisfy different tastes/wants. 
   • Option A:  Small items such as candy, stickers, pencils, trading cards, hair accessories, tardy passes, etc. 
   • Option B:  Valid gift cards loaded with a consistent value.  A wide variety of types of gift cards works best. 
   • Option C:  Used/invalid gift cards of a variety of types.  These have no monetary value but still can be used for the trading activity.  Stores will often donate blank cards or students could bring in ones they have already used. 
3. Handout: Trade for the Win

1. How many people made trades? 
   • Ask several traders what they traded and why.
   • Follow the students’ explanations by asking how they felt after the trade.(Most students will be “happier,” and will feel that they got the best end of the deal.) 
   • Find the student who was the other party to the exchange and ask why he/she traded and how he/she felt after the trade. (Most of the trading partners will also be “happier.” If a student does not report feeling better off, find out why. This is a chance to emphasize that costs occur in the future and that sometimes we make mistakes in anticipating that we’ll benefit more than we actually do. See debriefing questions on cost below. Most of the students will have made trades; however, there will be a few who were either satisfied with what they had and did not trade, or who had something that no one would trade to obtain.)
2. Go back to some of the students who discussed their trades in response to question #1 and ask what it cost to make the exchange. (Students had to give up some or all of what was in their possession in order to make the exchange. Emphasize the definition of opportunity cost as the foregone alternative. Emphasize that costs exist because of scarcity.)
3. Did anyone trade more than once? Why? Did anyone not trade? Why?
   (Emphasize, again, that voluntary trade is based on the mutual perception of benefit. We make decisions every day based on what we are getting and giving up.  A trade was made when the parties perceived that the benefit of the trade was greater than what was given up.  No trade was made with the cost exceeded the benefit)
4. Discuss the overall group satisfaction tally from each round. 
   • What is the difference between the satisfaction we measured in class and the idea of wealth? What are some similarities? 
   • How did wealth increase when nothing new was added? (There was more wealth because through voluntary trade, the articles in the bag went from people who valued them less to people who valued them more, increasing the wealth of both trading partners. As more trade was allowed, more wealth was created.) 
   • What happened to your individual satisfaction rating in each round? (Not everyone will see improvement in each round but many, if not most, will.  The choice that is possible with trade allows individuals to give up something they value less in favor of something they value more like in the movie theater example at the beginning of the lesson). 
   • Relate the three rounds to real world trade.  Round 1 represented conditions of no trade.  Round 2 could be compared to having some trade, perhaps regional or national.  Round 3 could be compared to opening trade world-wide. 
5. Why do people trade?
   (People trade to get something of more value by giving up something of less value.) 
   • Was it possible to trade without bearing a cost? Why? (No. Because of scarcity, we cannot have everything we want. There is always a trade-off.  Something is gained and something is always given up) 
   • What was the cost and what was the benefit of each trade? (What was traded away was the cost of the trade. What was received was the benefit.).