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Using Kahoot! & Popular Literature to Introduce International Trade

Ying Zhen, Ph.D.Assistant Professor

Department of Business and EconomicsWesleyan College

Your Views about International Trade: Using Kahoot!

Kahoot! is a free game-based platform that enables playful and interesting learning experiences in the classroom. Students can use any electronic device to go to its website and enter the game pin assigned by the instructor. Then they can have surveys, warm-up quizzes, etc. in a very entertaining way. It is a great example of connected learning.

Step 1: Go to https://kahoot.it Step 2: Enter the Game Pin shown on the screen (assigned by

the instructor)Step 3: Using your electronic device to choose the right

answers.

Kahoot.it QuestionsYour Views about International Trade

Questions:

Which country below is NOT in the top 3 of United States' trading partners?

Exports are good as they create jobs, while imports are bad as they give jobs to foreigners. 

It does NOT make sense for big & rich countries to trade with small & poor countries.

There should be no trade of cars & toys b/w US & UK, if US is more productive in producing both

Why Do Countries Trade???

Popular Literature: A Development of Classical Theory of International Trade

Mercantilism: Older than Smith—and Alive Today! (esp. in the U.S.)

Adam Smith’s Absolute Advantage ModelDavid Ricardo’s Comparative Advantage Model

MercantilismA system of government policies and institutions

aimed at increasing exports and decreasing imports.The source of a country’s wealth is gold or money.Two means of increasing a country’s wealth are

colonialism and international trade.A country must export more and import less.Trade is a zero-sum activity

Adam SmithArgued that mercantilism lowered a country’s

standard of living.The importance of national production and exports

is only indirect: they provide the income to buy products to consume

Advocated free international trade. Trade is positive-sum activity.

Emphasized advantages of specialization and international division of labor whereby nations specialize in the production of only a few goods.

Adam Smith’s Absolute Advantage Model

Absolute Advantage as a Basis for Trade

David Ricardo’s Law of Comparative Advantage

Comparative Advantage and Opportunity Cost

Absolute advantage The ability of an individual, a firm, or a country to produce more of a good or service than competitors, using the same amount of resources.

Comparative advantage The ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost (i.e. a lower sacrifice) than competitors.

Opportunity Cost: The Value of Your 2nd Best Choice (this is how your sacrifice is measured).

Adam Smith’s PrinciplePer Unit Gains from Specialization When Country A Moves

to Specialize in Soybeans (S), and Country B in Textiles (T)

Summary: Adam SmithCountries in the world differ in their ability to

produce various goodsWorld output will increase if countries

specialize in their absolute advantage products.

This situation is the natural outcome of market forces combined with free trade. A good is cheapest in the country that has absolute advantage in its production.

What if one country has A.A. in both goods??David Ricardo:Countries should specialize where they have their Comparative Advantage!!--The Law of Comparative Advantage

What If One Country Has Absolute Advantage in Both Goods?

Comparative Advantage in International Trade

An Example of American Workers Being More Productive Than Chinese Workers

OUTPUT PER 1,000 HOUR OF WORK

COMPUTERS IPHONES

U.S. 12,000 6,000

CHINA 2,000 4,000

The Opportunity Costs of Producing Computers & iPhones

OPPORTUNITY COSTS

COMPUTERS IPHONESU.S. 0.5 iPhones 2 Computers

CHINA 2 iPhones 0.5 Computers

Comparative Advantage in International Trade

The table shows the opportunity cost each country faces in producing computers and iPhones. For example, the entry in the first row and second column shows that U.S. must give up 2 computers for every iPhone it produces.

How Countries Gainfrom International Trade

Production/Consumption without Trade

PRODUCTION AND CONSUMPTION BEFORE TRADE

COMPUTERS IPHONESU.S. 9,000 1,500CHINA 1,500 1,000

Production without Trade

PRODUCTION

COMPUTERS IPHONESU.S. 12,000 0

CHINA 0 4,000

Consumption after Trade (Trade Agreement: U.S. Exports 1,500 Computers for 1,500 iPhones from China)

CONSUMPTION AFTER TRADECOMPUTERS IPHONES

U.S. 12,000-1,500=10,500 1,500CHINA 1,500 4,000-1,500=2,500

SummaryThe basis for trade is comparative advantage, not

absolute advantage. Individuals, firms, and countries are better off if they

specialize in producing goods and services for which they have a comparative advantage and obtain the other goods and services they need by trading.

!!! They can CONSUME more after trade! THIS EXPLAINS WHY U.S.-CHINA TRADE IS A WIN-WIN GAME!!***Applications of Comparative Advantage: 1) OUTSOURCING! Video: Is Outsourcing bad for the U.S.?https://www.youtube.com/watch?v=e5wODB9hgRw 2) WHY PEOPLE GET MARRIED/DIVORCED?

Comparative Advantage: Marriage vs. Divorce

Production, Specialization, and the Gains to Marriage

Only marry if expect to be better off than if remain single.

Use model from international trade: benefits of specialization and trade.

Economic model: based on men and women with comparative advantages (in terms of sacrifices) in home and paid labor market.

Risks of SpecializationLife-cycle changes: advantage changes as individual ages

(kids grow up), etc.Women who specialize and then re-enter the paid

workforce find earnings potential has fallen. This is risky given high probability of divorce.◦ Reduces incentives to specialize.◦ Both occur simultaneously:

specialization divorce. divorce specialization; VICIOUS CIRCLE!!!