Trade for the Win!

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.  
Lesson Description
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.  The ability to exchange goods they possess for items that they value more increases the wealth for both the individual and the group.  Video resources will reinforce the concepts of this lesson. 

Intended Audience
This lesson is applicable for elementary, middle school, and high school students.
 
Content Standard:
Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.
 
Objectives:
  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.


 
Materials:
  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
 
Time Required:  1 class period (approximately 50 minutes) 
Prepping bags requires extra time.  Again, seek out help from your parent-teacher organization or have students bring in pre-filled bags.

Procedure:
1. Before beginning the simulation, place the trading items in brown paper bags and seal them. Divide the bags into groups of about 5 or 6, depending on class size.  Each group should have bags with different items. If you use gift cards, there should be one gift card in each bag.  If you use other items as mentioned above, items may be divided unequally and could be divisible for bags with multiple items

2. Explain to students that today they have an opportunity to participate in a trading activity. The purpose of the activity is to explore why people trade.

3. Ask, “Why do people trade?” Record some student responses on the board and indicate that these responses. Explain to the class that they engage in trade frequently when they purchase goods and services.  Trade can be very personal with voluntary exchange and can extend to organizations from different countries engaging in the same voluntary exchange.  Explain that this activity will provide information and experience to demonstrate this.  Define the word utility to mean satisfaction from purchasing/consuming a good or service.

4. Describe the following situation to the class.  A teenager who loves movies goes to see the latest blockbuster hit on opening night and pays $12 for a ticket.  The movie-goer pays the money to the theater.  Who gains from that trade?
(Both people gained in the trade. The movie-goer gave up something of lesser value, $12, to get something of more value, the new release movie. The owner gave up something of lesser value, the movie seat, to get something of more value, $12. Both the movie-goer and owner ended up with something of more value to them. They both gain.)

5. Assign 5-6 students to each group and direct groups to locate in specific areas within the classroom.  Announce to students that you are going to give them bags, which they will then own, and ask them not to open the bags until told to do so. Distribute the bags so that each group has a variety of options.

6. Ask students to open their bags and look at the object WITHOUT removing it from the bag or showing it to anyone else. Direct students to rate their satisfaction with the bags using a show of hands and a 1-5 rating system in which 5 is high and 1 is low.  Students should also write the rating on the paper bag so that they can see the difference in each round.
(Ask for a show of hands for each rating – 1, 2, 3, etc., and record tally on the board or overhead transparency and ask students to record the tally on their handout (if using). Every student should vote in each round.)

7. Tell students they may now take the objects out of the bags. Remind students that they own what is in the bag and that they may trade or not.  They may trade parts or all or nothing. Allow students in small groups to trade among themselves.  Repeat the 1-5 evaluation by show of hands, reminding students to rate what they now have in their possession, and reminding them that they must rate their bags again whether they traded or not. Students should record the rating on the paper bag.  (Note that students may change their ratings even if they don’t trade. Be sure that every student votes, even if he hasn’t traded or changed his satisfaction rating. Record the tally on the board with a different colored marker than the first tally and have students update their ratings and the class tally on their handouts.)  

8. Conduct one more additional trading round, combining groups and having all class members trade.  (There are other variations of this simulation which offer an additional round of sub-group trading.  Feel free to adapt, but the point is made using less time with only three variations). Allow enough time for students to move around the class and evaluate their trading decisions.  Again, they don’t have to trade if they do not wish to.  
(Ask for a show of hands for each rating – 1, 2, 3, etc., and record tally on the board or overhead transparency. Every student should vote.)

9. While the students are trading, or after all trading is completed, calculate the total “satisfaction points” for each round. Record the total below each tally.  Students should record their individual rating on the paper bag they were originally given.  They should have a score for each round.



DEBRIEF
  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.).




Extensions:
Several video resources support the lesson.  
 
An Animal That Trades is a video series from AdamSmithWorks.org in five parts. Each part is useful for discussion of how trade influences and is influenced by the theme of each video. If only one video can be used, Part 3 is the most relevant to the discussion. 
Full Feature (40:42)




It could also be very effective to have high school students read an essay to discuss after taking part in the trading game. 


“Division of Labor Part 1” by Michael Munger (AdamSmithWorks, or as handout)




Trade for the Win adapts procedures used in “Why Do People Trade,” Master Curriculum Guide In Economics International Trade, by Donald R. Wentworth and Kenneth E. Leonard (Copyright 1988 by the National Council on Economic Education),  as well as the Foundation for Teaching Economics  “The Magic of Markets: Trade Creates Wealth”.