Gains from Trade

On Friday I covered Chapter 8 of Cowen and Tabarrok’s Micro split (18 in Macro) — International Trade.  My previous textbook handled trade in Chapter 2, but I now think it goes just as well later because putting it in the eighth chapter means that it can be seamlessly integrated into the supply and demand framework.  Figures 8.1 and 8.2, which show imports and tariffs using supply and demand, work very well and build on the strengths that students are developing in this part of the course.

The other big difference from my old textbook is that C&T don’t draw a production possibilities frontier in working through their comparative advantage example.  I’ve always liked the ppf approach, since it shows so graphically how rearranging who does what allows both parties to jump above their old constraints and get a free lunch from specializing and trading.  Slave of tradition that I am, I brushed off my handout on Peter and Mary trading fish and bread and introduced the ppf anyway — it only takes 10 minutes.

A picture is worth a thousand words — and a graph is worth, perhaps, 10,000.  The highlights of the International Trade chapter are the picture of Mr. Spock and quick dissing of  Star Trek for the blasphemous idea that even Spock’s brain could run a modern economy– could it have run an ancient economy or a medieval one? I doubt it — and Figure 8.4 which shows plain as day how child labor force participation falls with GDP per capita.  I used this graph as a springboard for discussing the meaning of “exploitation” which segued nicely into our discussion of Labor Markets in Chapter 14.  More on this tomorrow.