Keystone Principle #6 – Do What You Do Best, Trade for the Rest

Voluntary National Content Standards: #5, #6, #11

Connection:

Transactions take place because both parties perceive that the trade will make them better off.  By focusing on the things we each do best, we can trade for the things others do best and obtain a mix that is a combination of the best each can offer.  Any students who engage in group activities will intuitively understand this.  (The classroom runs smoothly because everyone does their job – sharpen pencils, mark the calendar, take attendance; the class play is a success because everyone learned their lines.)  People enter into these reciprocal agreements because they think doing so will make them better off.

The value that is attained may be material, but it can also be much more.  Sometimes we think of altruistically-motivated transactions as benefitting only the recipients (Mike forgot to bring his lunch to school; Susie offers to share hers). When we think economically, however, we realize that the psychic benefit the giver receives has a substantive and legitimate value.  The emotional costs and benefits of the things we do are often as motivating as the material ones.

• Keystone Economic Principles highlights the benefits that accrue when transactions are transparent, open and honest.  This specifically refers to the ready availability of information to both parties.  While it may seem obvious that the participants must actually avail themselves of the information, failure to do so is not uncommon.  Occasionally we naively assume that the other party is looking out for out benefit as well as their own.  This can cause us to take things at face value rather than consider all the costs and the likely consequences.  In the words of a popular insurance company advertisement, “Don’t just hope so; know so.”
• It seems inherent in human nature for both parties to find some way to skew a potential transaction to benefit themselves.  This can range from fairly benign hyperbole (using our athletic products will make you talented like the star who endorses them) to outright coercion (more likely to happen when the status of the parties is unequal to begin with – teacher/student; parent/child; older child/younger child.)  Although children are usually anxious to please the authority figure, but they still can tell the difference between voluntarily engaging in a transaction and being pushed into it.
  • If a transaction is perceived as “unfair,” the disadvantaged party is damaged in the short term and will work to get out of the arrangement.
  • If the disadvantaged party becomes aware of any duplicity, he or she is likely to feel victimized and resentful.  There is always the possibility that these feelings can lead to retaliation.
• Individuals and societies as a whole function more smoothly when information is widely disseminated and widely known.  Transactions can then be undertaken with confidence.  A foundation is created allowing individuals and nations to achieve trading relationships built on trust and respect.  The Objectives listed below will help your students recognize the bricks that build that foundation.

Objectives

I. Understanding

• Attempting to produce by yourself everything you want to consume limits both your production and consumption possibilities.
• To specialize, you must figure out what you “do best.”  Economists define “best” as that which you produce at the lowest opportunity cost. If we must give up only a relatively few things in order to produce a particular good or service, that is said to be a low opportunity cost. Conversely, a high opportunity cost means that we must give up a relatively large number of other goods in order to produce the particular good or service in question.  By specializing, we concentrate on producing the goods or services with a low opportunity cost and sell them for the things we would produce at a high opportunity cost.  This is what economists mean by comparative advantage.  In other words, we are “doing what we do best and trading for the rest.”
• Specialization and trading goods and services with others can help everyone.  Trading can also provide the incentive to ease social and political tension among people and nations.
  • Peaceful resolution of conflict benefits all trading partners.
  • Stable international relations help producers find a market for their goods.
  • Stable international relations allow consumers to benefit from foreign goods.
• As long as the trade is voluntary, both parties can expect to be made better off, but not necessarily in equal measure.
• Whether person-to-person or nation-to-nation, trade expands the range of choices available to the trading partners.
• Trade has greater benefits when transactions are transparent, open and honest, while providing reasonable access to perfect information.
• The power relationship between the two trading partners affects perceptions of the value of gain from trade. Some examples of unequal trading relationships are parent/child, employer (or manager)/employee, or teacher/student.

II. Skills

Students will be able to:

• define vocabulary
• identify something they can do at a relatively low opportunity cost
• explain the benefits of specialization
• explain the benefits of trade
• identify the conditions which lead to greater trade benefits

Activities

I. Concept Vocabulary

• Consumers – People who use goods and services to satisfy their personal needs and not for resale or in the production of other goods and services.
• Goods – Tangible objects that satisfy economic wants.
• Opportunity Cost – The second-best alternative (or the value of that alternative) that must be given up when scarce resources are used for one purpose instead of another.
• Perception of Value – The value given to a good or service by an individual based on his or her value system.
• Producers – People and firms that use resources to make goods and services.
• Services – Activities performed by people, firms or government agencies to satisfy economic wants.
• Specialization – A situation in which people produce a narrower range of goods and services than they consume. Specialization increases productivity; it also requires trade and increases interdependence.
• Trade – The exchange of goods and services for money or other goods and services.

II. Journals

Initial Prompt (to be done during the introduction of this monthly theme/principle):

Make a list of things that you think (or someone has told you) you do well. Pick the thing on the list that you enjoy most and explain why you enjoy it. If you think that there is nothing that you do well, just pick something that you enjoy doing and explain why.

General assignment:

Choose from the quotations below and write a journal entry of at least half a page, incorporating the following elements.

1. Restate the idea in your own words
2. Say whether or not you agree with the statement,
3. Explain why you agree or disagree
4. Discuss how you have seen it expressed in your own life.

III. Classroom Economic Project:

Using the economic principles and concepts you have studied so far, have your class brainstorm ideas for a classroom project and plan its implementation.  You will find ideas for special projects undertaken by other schools elsewhere on this website. Delegate as much of the work as possible to your students; it should be their project.

1. Have frequent discussions during the planning and implementation process about specific economic concepts they are putting to use.
2. Invite others in your school, parents, and members of your community to share the process with you.
3. The project should be completed no later than the end of March.  At its conclusion, have the students write or discuss with you the following ideas:
   1. Did they learn anything new by participating in this project?
   2. Identify the skills they used to complete the project.
   3. Identify skills they would like to acquire before doing another project.
   4. How might they transfer this experience to their non-academic life?
   5. Describe the most successful part of the project.
   6. Identify the greatest weakness of the project.  How could it be improved?

IV. Quotations:

1. “We don’t know who we are until we see what we can do.”  Martha Grimes
2. “To find out what one is fitted to do, and to secure an opportunity to do it, is the key to happiness.” John Dewey
3. “The general fact is that the most effective way of utilizing human energy is through an organized rivalry, which by specialization and social control is, at the same time, organized co-operation.” Charles Horton Cooley
4. “Its imaginary value will increase with the years, and if he [his grandson-in-law] lives to my age, or another half century, he may see it carried in the procession of our nation’s birthday, as the relics of the saints are in those of the church.” Thomas Jefferson (Jefferson refers to the lap desk on which he composed the Declaration of Independence.)
5. “Trade is the natural enemy of all violent passions. Trade loves moderation, delights in compromise, and is most careful to avoid anger. It is patient, supple, and insinuating, only resorting to extreme measures in cases of absolute necessity. Trade makes men independent of one another and gives them a high idea of their personal importance: it leads them to want to manage their own affairs and teaches them to succeed therein. Hence it makes them inclined to liberty but disinclined to revolution.” Alexis de Tocqueville
6. “No nation was ever ruined by trade.” Benjamin Franklin
7. “Free trade, one of the greatest blessings which a government can confer on a people, is in almost every country unpopular.” Thomas Babington, Lord Macaulay
8. ”Men don’t and can’t live by exchanging articles, but by producing them. They don’t live by trade, but by work.” John Ruskin
9. “I am in favor of helping the prosperity of all countries because, when we are all prosperous, the trade with each becomes more valuable to the other.” William Howard Taft

Lessons

Around the World in a Chocolate Kiss (from the Powell Center Lessons)

From Virtual Economics, v.3:

• The Wide World of Trade (MS), 1-56183-136-0; Lesson 2:  Special Friends; Lesson 3: Everyone Is Interdependent; Lesson 4:  Resources and Trade; Lesson 7:  Mutual (and Comparative) Advantages
• Choices & Changes: In Life, School, and Work – Grades 9-10 – Teacher’s Resource Manual (HS), 1-56183-592-7; Unit 2: Lesson 8 – My Human Capital plus Choices & Changes: In Life, School, and Work – Grades 9-10 – Student Activity Journal – Student Activity 6-1, My History, and Student Activity 7-1, My Human Capital
• Learning, Earning and Investing: Middle School, 1-56183-569-2; Lesson 3 – Invest in

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