ECONOMICS ACTIVITY
WHY DO NATIONS
TRADE?
Learning Target: Explain how
specialization leads to global
trade.
Why do countries trade? Shouldn't a strong country such as the United
States produce all of the computers, TVs, cars, and cell phones it wants
rather than import such products from Japan? Why do the Japanese and
other countries buy wheat, corn, and other goods from the United States?
Because countries have different natural, human, and capital resources,
they are not equally good at producing the same goods and services. The
decision to produce any good or service has an opportunity cost, which is
the amount of another good or service that could have been produced. It is
better for a country to produce goods with lower opportunity costs. They
can specialize in some goods and use their surplus of these goods to
trade with other countries.
Trade occurs when individuals, regions and countries specialize in what
they produce at the lowest opportunity cost. Trade causes both production
and consumption to increase and benefits both countries.
In this activity, you will represent one of two countries, Narnia or Gondour.
You will decide what to specialize in producing and what trading pattern
your country will follow. There are two products to choose from, markers or
paper.
NARNIA
You can produce 60 markers and 30 pieces of paper if you spend half
of your working hours on each.
1. If you spent all of your working hours on markers, how many could
you produce?
2. If you spent all of your working hours on paper, how many could you
produce?
3. What is the opportunity cost of producing only markers?
4. What is the opportunity cost of producing only paper?
5. Which product has a lower opportunity cost?
6. What will you specialize in producing?
7. Your country needs 60 markers and 60 pieces of paper. How will you
meet your country’s demand?
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GONDOUR
You can produce 30 markers and 60 pieces of paper if you spend half
of your working hours on each.
1. If you spent all of your working hours on markers, how many could
you produce?
2. If you spent all of your working hours on paper, how many could you
produce?
3. What is the opportunity cost of producing only markers?
4. What is the opportunity cost of producing only paper?
5. Which product has a lower opportunity cost?
6. What will you specialize in producing?
7. Your country needs 60 markers and 60 pieces of paper. How will you
meet your country’s demand?
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Debrief
Table A. Production with Each Country Producing both Goods
Narnia
Gondour
Total
Markers
60
30
90
Pieces of Paper
30
60
90
Table B. Production with Each Country Specializing
Narnia
Gondour
Total
Markers
120
0
120
Pieces of Paper
0
120
120
How did specialization increase production of markers and paper?
How did Narnia and Gondour benefit from trade?
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