[2a] In-class Trading Game — Comparative Advantage in Action

Goal of this in-class game is to learn the difference between absolute and comparative advantages intuitively, experience why individuals/countries with different production capabilities all benefit from trade, and naturally practice marginal thinking.

Within each group of four, divide students into pairs and assign each pair the roles of Person A and Person B. A and B each have the ability to produce two products: paper airplane and paper boat. Abilities are measured by actually folding paper by hand or using pre-set values. E.g., A can make 2 air planes and 1 boat in 2 minutes. B can make 1 airplane and 2 boats in 2 minutes. The goods produced are scored (e.g., 1 airplane = 1 point, 1 boat = 2 points, etc.)

• Round 1 (closed economy): A and B do not trade each other for 2 minutes based on their own production techniques. Record the total profits using each product’s score.
• Round 2 (open economy): Two pairs A and B can freely negotiate division of labor and trading strategies. E.g., A produces only airplanes, B produces only ships, and then they exchange goods with each other. Observe total production volume and revenue, using each product’s score.

Analysis: Compare the total production volume as well as changes in revenues before and after trade. Who gained or lost from trade? How did overall efficiency change?