WHY PEOPLE TRADE? Anna’s Economics in Action Class
Anna stop by the local gas station and puts $40 worth of gas in her car. Anna then pays the station owner $40.
Opinion 1 Both gained and lost Gasoline Gain: Lose: $40 $40 Gain: Lose: Gasoline
Opinion 2 Both parties overall gained BOTH BETTER OFF < >
Class Objectives Students will 1. Participate in a trading activity and describe the incentives that encourage trade. 2. Explain the outcomes of voluntary trade. 3. Explain why there aren't any direct losers from voluntary trade. 4. Explain why both parties benefit from the trade.
Game Activity Why people trade? Round 1 Voluntary Trade -with barriers-
Game Activity Why people trade? Round 2 Free trade -with no Restrictions-
Summary People place different marginal values on items. People tend to give up items they value less than the item they are getting in exchange. Because “people response to incentives.” If you made a trade at least one times during the activity that mean you ended up with an item you valued more than the one you had at the beginning.
Related Principles #3. Rational people think at the margin. #4. People respond to incentives. #5. Trade can make everyone better off.
Definitions Voluntary Trade: You act on your free will => Both gains, both better off. Utility: your happiness or satisfaction of an item. Barriers to trade: in the past- geographical limitation in the present- restriction by Government(enact by law) Free Trade: the trade of Goods and Services between countries under no Government imposed restriction. Benefits of trade: people better off. => trade make you more happy.