Chapter 28: International Trade
1. Remind students that international trade principles are the same as interpersonal trade principles. Is
it in your interest to protect yourself from trading with others next door? Is it in your interest to stop buying
from your local grocery store because you are running a balance of trade deficit with him? Why are these
issues any different than when we are dealing with trading partners in other countries? Combining this
fact with the In the News section on outsourcing can also lead to some interesting classroom discussions.
2. A good classroom discussion starter is to ask students why we might trade more with some more
3. Babe Ruth is a good illustration of comparative advantage. He was a great pitcher (64-31 with the
Boston Red Sox from 1915-1917) but an even greater hitter, relative to other players of the time. Even
4. Teachers are always looking for new examples of the gains from specialization and trade. During the
Reagan administration, I used one involving a ythical couple named Nancy and Ronnie to supplement
the text presentation with some classroom success. Each must chop 1 cord of wood and decorate 1
5. A good example of comparative advantage involves charity. A sports or other entertainment star
could often do more good for charity by doing what he or she has a comparative advantage in for pay,
and then donating the money, than by being directly involved in the process of helping directly (e.g., Is
LeBron J time worth more playing basketball or serving food at a homeless center?) Of course, if
6. A good classroom example of comparative advantage to talk about is America s comparative
advantage in higher education, where we export education services to much of the rest of the world
through a very large number of foreign students.
7. A useful analogy to issues of absolute advantage versus comparative advantage is in school.
8. Emphasize to students that as long as wage rates are able to compensate for differences in absolute
9. A good classroom illustration of trade issues is to show students that self–interest implies that I want
free trade (competition) for what they buy, because that benefits me through lower prices and/or higher
quality at a given price. However, self-interest also implies that I want to restrict others with whom I
10. It may be useful to connect the maximization of the sum of consumer surplus and producer surplus
here to the general welfare cost argument against all sorts of restrictions on trade, whether they are
taxes, regulations, price controls, etc.
11. An interesting way to tie together political issues with trade issues is to ask students why they think it
has been politically easier to get the government to allow free trade in export markets than import
12. A good classroom application of trade issues (that also makes clear that the issues involved are not
labor versus capital) is to ask why union members in export industries might disagree with union
13. Since most students have heard of the Smoot-Hawley tariff at one time or another, but probably don t
know what is involved, it might be worth some classroom time to discuss it, and the dramatic plunge in the
volume of international trade during the Great Depression.
14. Note that limiting imports, which seems on the surface to increase domestic demand (if you don t buy
15. A good way of discussing protectionism is in terms of how it is portrayed. Those in favor of
protectionism portray the issue as one of American producers versus foreign producers (where we should
16. A good illustration of the difference between tariffs and quotas is how Japanese automakers
dramatically increased their profits under U.S. automobile import quotas imposed on them in the 1980s
(restricting their sales in the U.S. raised their profits sharply) while increased tariffs would have instead
decreased their profits and raised more tariff revenue for the government.
17. It might be worth extending the sugar quota discussion to the effects on the corn syrup market and