Current Events:
Today's lesson plan and HW is available on the blog: http://gmicksmithsocialstudies.blogspot.com/
Email: gmsmith@shanahan.org
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We are addressing Chapter 2 in particular for the parts not covered in the Quiz. We will cover the non-Quiz material in Chapter 2 for a Test on Chapter 2.
The exercise is Handout 2-1.
I will cover Questions #1-7; and then, in your small groups, you can work to solve the questions before we review as a class.
We have to finish #4-7.
4) Explain why each country is better off at “b” than it was at “a.”
5) Suppose that Mexico experiences growth such that its production possibilities curve now has the endpoints of 15 on the vertical axis and 6 on the horizontal axis. Draw the new production possibilities curve for Mexico.
6) Explain what may have caused this growth.
7) Has Mexico’s absolute advantage changed as a result of growth? Has its comparative advantage changed? Explain why or why not.
We will begin "NAFTA: Are Jobs Being Sucked Out of the United States?"
Description:
The level of output in an economy can be increased through specialization. Economic specialization occurs when people produce different goods and services than they consume. It requires people to exchange goods and services.
Lesson Objectives:
Students will understand that:
The level of output in an economy can be increased through specialization. Economic specialization occurs when people produce different goods and services than they consume. It requires people to exchange goods and services, thus increasing interdependence.
Specialization and exchange occur when there is unequal distribution of productive resources and when one party can produce a product at a lower opportunity cost than another party. This latter condition, known as comparative advantage, allows nations (or individuals) to benefit from specialization and trade, even though productive resources are unevenly distributed.
NAFTA: Are Jobs Being Sucked Out of the United States?
Introduction:
NAFTA, the North American Free Trade Agreement, went into effect on January 1, 1994. The Agreement phases out most tariffs between the United States, Canada, and Mexico. Tariffs, which are taxes on imports, increase the price of foreign goods and thereby benefit domestic producers. The participants in NAFTA agreed to reduce tariffs by 50 percent immediately and to reduce them to zero over the following 15 years. Industries suffering the most because of the increased competition from foreign goods would be given extra time to adjust to the elimination of tariffs on their foreign competitors' products.
Economists are generally in agreement that free trade benefits both parties involved in the exchange. Their argument rests on the principle of comparative advantage. An individual or country may be more efficient in producing all goods. However, both parties benefit if each individual or country specializes in producing goods in which it is relatively efficient and voluntarily trades for those goods in which others produce more efficiently.
The theoretical argument for free trade is persuasive. Nevertheless, many people object to the removal of trade barriers because they believe free trade will have a negative impact on employment and income. Others contend that the net benefits of free trade are positive and that tariffs protect the inefficient to the detriment of the country as a whole.
The International Debate Education Association (IDEA) presents a debate over the pros and cons of the free trade debate. Students could be quizzed on the arguments and asked to take a stand on the issues.
The debate in the United States on NAFTA centers on potential job losses because of competition with Mexico. Specifically, individuals such as Reform Party founder Ross Perot and presidential candidate Patrick Buchanan argue that lower wages in Mexico will result in United States businesses moving to Mexico. This would mean job losses in the United States. Others counter that although wages are higher in the United States, so is worker productivity. The net result in most industries is that costs in the United States are lower than in Mexico.
The effect of NAFTA on the United States economy can be determined only by a look at the data. We must see what has happened to trade since the Agreement took effect and attempt to draw conclusions about its effects.
For the "Process," we will consider "Frontier Specialists."
Activity 1:
Pretend the year is 1840. Your family moved one year ago to a sparsely populated area west of the Mississippi River. Only one other family lives within 10 miles of your house, and it is 50 miles to the next town. Each family has 50 acres of land.
Each family has been producing all its own food and clothing for the past year. As the families have come to know each other, Mr. Sanchez notices that each family has some special skills and resources. The Jacobsons seem to have an absolute advantage in growing corn and the Sanchez family an absolute advantage in hunting meat. (A person has an absolute advantage if he or she can produce more of a product with the same amount of resources.)
In your small groups, draw a chart which represents current production.
Food Production Without Specialization: (Units)
You should have three columns: Family, Corn, and Meat; and, you should have three rows: Sanchez, Jacobson, and TOTAL.
The families meet to exchange information. Members from both families want to see if they would be better off if each family specialized in what it did best and exchanged the extra goods they produced for other items they need.
In your small group, draw a chart which represents what they found.
Food Production With Specialization: (Units)
Questions:
1. In which case does each family have an absolute advantage?
2. Would the families be better off if each family produced only one item and traded with the others? Explain?
3. What will happen if one of the families does not produce all it can?
Activity 2:
The Jacobson's have moved, and a new family, the Martins, now live near the Sanchez farm. The two families are interested in trading cloth and meat. The following is the new production schedule:
Food Production Without Specialization: (Units)
Now, you need three columns: Family, Cloth, and Meat; and, you should have three rows: Sanchez, Martin, and TOTAL.
One family has a comparative advantage here if it can produce a product at a lower opportunity cost than the other family. Comparative advantage is a primary basis for specialization and trade. To see if both families will benefit, we must see what each family would give up--the "cost" of one item in terms of the other item. The "cost" of one item in terms of the other is found by calculating the ratio between the two items. The ratio of meat to cloth for Sanchez is 2:1; for Martin 1.5:1. In other words, for the Sanchez family to produce one additional unit of meat, they must give up some cloth.
Questions:
1. Which family has the absolute advantage in producing cloth? Meat?
2. Can the Sanchez family still benefit from trading?
3. How much cloth would the Sanchez family give up to produce one additional unit of meat? The Martins?
4. Which family has a comparative advantage in meat (has to give up the least cloth)?
5. How much meat would the Sanchez family give up to produce one additional unit of cloth? The Martins?
6. Which family has the comparative advantage in cloth?
7. Should the two families specialize and trade (Cf. the summary below)?
8. Which family should produce cloth and which should produce meat? Complete the following production schedule to find your answer.
[It would benefit both families to specialize and trade. If the Sanchez family produces all meat, it can produce a total of 20 units of meat. If the Martins produce all cloth, they can produce a total of 9 units of cloth. Total production for the two families increases and they will be better off.]
Conclusion:
The debate on NAFTA, and United States foreign trade in general, usually centers on the potential negative effects of imports on the economy. It is relatively easy to identify who is harmed, because imports displace workers in industries where the comparative advantage lies elsewhere. At the same time, others benefit. Firms whose exports increase clearly benefit. Consumers get the same or higher quality products at lower costs. Are these gains costless? No; some firms lose sales and some individuals lose their jobs. Is protecting firms or industries that are likely to lose costless? No; we lose the gains from trade, and those who would have benefited because they could have increased exports never get the chance to do so.
The purpose of this lesson is to acquaint students with the concept of comparative advantage (relative efficiency) and the arguments for and against foreign trade. Understanding the theory, the debates surrounding the theory, and the relevant data will help students to think clearly about optimum public policy concerning free trade.
References
Cf. Absolute Advantage: "NAFTA: Are Jobs Being Sucked Out of the United States?"
HW send to gmsmith@shanahan.org
Define the following terms:
Key Economic Concepts:
* Absolute Advantage
* Comparative Advantage
* Exchange
* Goods
* Interdependence
* Services
* Specialization
