Gains From Trade

In economics, trade is considered the voluntary exchange of goods and services. People who want to trade with others must be willing to give something up in order to get the item they're looking for. People will only participate in trade voluntarily when they expect to gain from the exchange. 

The following scene from Moneyball shows Billy Beane and Peter Brand contacting a number of other General Managers in Major League Baseball in an effort to identify other players they may be willing to trade. Beyond just exchanging players, teams are also willing to exchange future draft picks or cash in order to get (or get rid of) a player they (don't) want:

This demonstration shows that trade creates values for both parties and helps dispel the misperception that trade is zero-sum. Students often think that trade only works when one person is "taken advantage of." This demonstration is most effective before beginning a lesson on trade or as a summary before beginning the next lesson. The entire demonstration takes around 10 minutes and can be used in any class size with more than 5 students.

Materials:

  • Ten student volunteers

  • Ten snacks that students can have after the demonstration (a mix of healthy and sweet snacks will result in a wide range of preferences among the volunteers). Some good examples include:

    • Pieces of fruit​ (apple/banana/orange)

    • Cans of sodas/teas/sports drink/juice

    • Snacks like pretzels/chips/granola bar

    • Candy like M&Ms/Skittles/Reeces

    • School-affiliated items (lanyard, keychain, etc)

Procedure

  1. Ask students to line up at the front of the class and randomly assign items to different students. Don't ask them what they want!

  2. Have each student announce what item they have and then assign a value on a scale of 0 (not preferrable) to 10 (excellent). As students call out the value of their items, sum up the values to present later.

  3. Give each student 30-60 seconds to trade their item with someone else. In order to trade, students must find someone willing to trade voluntarily. 

  4. After the trades have occurred, have students announce their new item (if applicable) and their new rating. Sum up the total values of their items and share them during the reflection. 

 

Reflection:

As students return to their seats, calculate the average value of the items traded. A true exchange will create value for everyone and no one should be worse off. Play the video linked above where Billy Beane is attempting to locate players that he wants for his team. Trade, whether it's for baseball players or candy bars, creates values. People (and teams) will only trade if both parties believe they are benefiting. Have students list comparisons and differences for their trading demonstration and that of Billy Beane. 

Follow-up Activity: The Foundation for Teaching Economics has developed a similar game that introduces trade barriers and demonstrates how those barriers creates efficiency losses.

Teaching Economics with 
Moneyball