Play Dough Economics Cornell Cougar Company Lesson Tuchek

Trade: Getting the Things We Want People rarely produce all the goods & services they want themselves. Instead, they produce a limited variety of goods & services and then trade (exchange) with others to obtain the goods & services they have not produced themselves.

Voluntary Trade Voluntary trade between individuals is a positive sum event. This means that when trade is voluntary, both parties benefit. There is not a winner and a loser. If both parties did not believe they would benefit from the trade, it would not take place.

Trade or Barter Trade without money is known as direct exchange, or barter. Barter is inefficient because there must be a coincidence of wants. In other words, for trade to take place, each person must want what the other person has, and must be willing to trade for it.

Indirect Trade The use of money permits indirect trade. In indirect trade, individuals accept moneyfor their own products, and then use the moneyto purchase other goods & services. With money, a coincidence of wants is not required, and the costs of trade are therefore greatly reduced. Money makes trade much more efficient.

Play Dough Time… Use your productive resources (land, labor & capital) to produce one or two goods. As producers, you should attempt to produce what consumers(other students) want. Remember that the quality must be good; otherwise students might not want to trade with you. To create more demand for your products, you may want to “advertise.” Tell other students (consumers) why they should trade for your product.

Decide which goodproduced by another student you would like to have. You will have about 5 minutes to trade for the good that you want most. Make as many trades as you wish in the trading time. You don’t have to trade if you don’t want to. Play Dough Time…

Why do people trade? Did everyone get the thing they wanted most? Why not? How many trades did it take to get the good you wanted? Why? What would you do differently if you did this again? Who benefited when you made a trade, you or the other person? How might we have made our trading easier? What happens if businesses make goods & services that consumers do not want to buy? What happens to businesses who produce goods & services that many consumers want? Who is really the “boss” – the producer or consumer? Play Dough Reflection Time…