Trade Restrictions and Local Economic Activities

This is applicable to a topic area on comparative advantage, specialization and trade primarily targeted to principles of micro (or macro). It should follow an initial presentation/problem section on these topics. It could be used for a refresher in more advanced courses depending on the preparation of the students. It should not require more than 20-40 minutes.

Overview

Students will be given a current problem on international trade barriers, and will be expected to analyze the effect of them on a local economy. Students are expected to use comparative advantage and specialization to explain the harm of trade barriers. A randomly selected reporter will explain the decision to the other teams in the class during the reporting segment.

Expected Student Learning Outcomes

Students are expected to apply concepts of comparative advantage and specialization to show how trade barriers reduce gains from trade. Students should be able to convey the PPF on a graph and show the consequences of trade restrictions.

Information Given to Students

Trade Restrictions and Local Economic Activities (Microsoft Word 2007 (.docx) 13kB Jul10 18)

Context and preparation: A more realistic case would be tariffs, but here we want to emphasize comparative advantage, specialization and the gains from trade without any additional welfare analysis. To motivate the topic, it may help to appeal to someone they have heard in casual conversation who says our country should "ban" the importation of a particular good. At this stage simply tell them that this is not entirely realistic, but other restrictions on trade such as tariffs are routinely used. In this case we are beginning to get grounded in some central concepts. You may want to tell them directly to incorporate a graph in their presentation.

When preparing the PPF graphs, students sometimes struggle with where to start. I have provided some information in the original file ("Consider placing steel ...."), but you may want to see if they can take this step on their own. Then as you circulate around the room, you can observe what they are doing or, prompt them such as "have you decided how you are going to graph this?" when the relevant time comes.

Students should be able to graph the gains from trade, by starting from any point on the original PPF (or optionally, you can give them a starting point). To simplify the answer, you may encourage students to seek a point that will maintain their consumption of the good they are trading away, but gain more of the other good. Then a point outside of the PPF should result, with gains equal to the vertical or horizontal point on the graph. Indifference curves are not needed here as long as one is willing to defer the discussion of preferences to later in the course. Most important here is that one can move to a consumption point outside the PPF with specialization and trade, and trade restrictions of the type given in the problem will prevent that.

When circulating around the room, you of course will want to strike a balance between "micro-managing" their process, and providing help when they are struggling. Those of you experienced in this type of learning will adapt to this readily. For those less experienced: students are usually receptive to help, but will let you know when "we got this!" (It also can lead to light-hearted humor later, if they don't quite!)

Debriefing notes: Push students to the idea of what would happen to gains from trade if trade is restricted. If they defend the "ban," ask them what is gained by giving up measureable gains from trade. Resources: recent articles from newspapers or on line sources about debates over trade (very topical as this is written in June, 2018 when steel and aluminum tariffs were imposed in the U.S.). In some cases professors may have to dig to find current applications (again, not the case in the U.S. in mid 2018!).

Graded problems during the module and test questions at the end of the module.