Trade & Specialization

Question of the Day

• There are two presidents buried atArlington National Cemetary. One is JohnF. Kennedy. Who is the other one?

• One of the first presidents in the 20thcentury.

• William Howard Taft

Activity Rules

• Inside voices.

• No “forced” trades. (Don’t steal from eachother)

• You must vote every single round.

• 3 minutes per trading session (I mayshorten that if everyone appears to havefinished)

• How many people made trades?

• Which items were most popular? Leastpopular? Why?

• Did anyone trade more than once? Why?Did anyone not trade?

• How might we explain the satisfactionpoints on the board?

• Was everyone happy with their trades?

• If we were to observe 20 people buyinggroceries, what might we conclude abouttheir gains and losses? Their wealth?

Trade Notes

• Imports: Goods or services that anindividual (or country) trades for.

• Exports: Goods or services that anindividual (or country) trades away.

• What is the relationship between exportsand imports?

Absolute vs. ComparativeAdvantage

• Absolute advantage: When one nation canproduce an item with fewer resources thananother nation can.

• Better technology, better productionprocesses etc.

• Comparative advantage: The ability toproduce an item at a lower opportunitycost.

• Countries or individuals will export (tradeaway) items they have a comparativeadvantage in producing. Why?

Barriers to Trade

• Quota

• Tariff

• Export Subsidy

• Why might a country put up barriers totrade?

• What is the difference between a “quota”and a “tariff?”

The World Trade Organization

North American Free TradeAgreement

• Canada, United States, & Mexico

• Reduces tariffs and other barriers of tradebetween these countries.

• Controversial

• Why?

Today’s Take-Away

• Free-trade, at least among individuals,makes everyone better off.

• The WTO and NAFTA are organizationsthat promote free-trade but are verycontroversial.

• We will discuss these more in-depthwhen we talk about current economicissues next week.

• Countries and individuals trade what theyare good at making for things they are not(comparative advantage)