An Experiment in Comparative Advantage

This is an experiment in the economics of international trade. At the beginning of the game, each country (i.e., 2 or more student teams) will be allocated a certain number of labor hours, which are needed to produce two separate goods: black and steel.

Each country must decide how many units of black and how many units of redto produce given the limited amount of labor hours that you have. You may produce any combination of black and redthat you like; you may choose to produce all of one good and zero units of the other. You should use all of your labor hours in each round. At the beginning of each round your labor hours will be restored.

You will then be allowed to trade with other countries in an attempt to expand your consumption beyond your production. There are a few restrictions:

• You may not make more than one trade in each round.
• You may not produce any fractional units of black or steel; you must produce whole units.
• You may not use fractional hours of labor; you must use whole hours to produce black and steel.

After each trading round, each country should record their production and consumption of black and red on the record sheet.

Round 1: Autarky

Choose the particular combination of black and redto be produced. Your country will consume exactly what you produce.

Round 2: Trade

After you have chosen the particular combination of black and redto be produced you may trade what you have produced for what another player has produced. Trading is limited to whole units.

Additional Rounds: Trade Agreements

You may contract to make trades before you produce. Consult with other countries about their production capabilities and make binding trade agreements based on the production each of you will undertake for the upcoming period. Do not agree to trade unless you can produce that quantity. You may not trade labor hours, only black and steel.

Source: Michael J. Haupert, "An Experiment in Comparative Advantage," Journal of Economic Education, pp. 37-44, Winter 1996.