The following classroom activity is a fun way of introducing the benefits of trade, and can be used in both small and large classrooms. For small classes (< 20 students), I use this activity on the first day of class as an icebreaker, allowing students to introduce themselves. For large classes, I wait until I cover trade, and ask for 12 volunteers to come to the front of the classroom.
Preparation: Purchase 12 or more random items at a Dollar Store. Find items that would be useful for some students but not others. Ideal items include a cat toy, tape measure, thank you cards, Spiderman tooth brush, Hello Kitty stickers, chocolate, pack of gum, box of candy, basic calculator, band aids, and balloons. Place each item in a brown paper bag and staple it shut.
Part 1: Have each participating student select a bag containing a random gift.
Part 2: Have each student introduce themselves, and then open the bag. The student then describes the item (this part is often funny depending on the item), and the rates the value of the item on a scale from 1 (worthless) to 10 (extremely valuable). Have a TA or another student keep track of names and values.
Part 3: Tell the students that these gifts are theirs to keep. However, you are allowing them an opportunity to obtain a more valuable gift to them by trading with any other student, if they choose. Allow one minute to allow students to trade.
Part 4: Have each student state whether they traded their item; and if they did, rate the new item.
Part 5: Show the class the list of students and gift ratings. Show the first column, and explain the concept of autarky (no trade). Although every item was purchased for $1, the ratings are very different from one another. This illustrates the difference between production efficiency and allocative efficiency. Production efficiency is achieved because each student received a gift at the lowest cost (effort of volunteering), but allocative efficiency was not achieved because not everyone ended up with something they desired. Compare this scenario with a real-life example of something a country is good at producing but doesn’t consume; for example, China produces NFL jerseys efficiently, though hardly anyone in China buys them.
Then discuss how trade allows some students to improve their outcome without anyone else being worse off. This is a Pareto efficient improvement, and also improves allocative efficiency. Calculate the total gains from trade by comparing the totals before and after trade.
Lastly, discuss why some people are against trade. Explain that in this activity, every student represented a country. In reality, every country has many people. If instead we had groups of students representing a country, some members might end up with an item that others in the group wanted. In other words, although countries benefit, not everybody in the country benefits.
This activity takes just 10 to 15 minutes of class time, and is a fun way to introduce trade and efficiency concepts.