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Adam Smith.mp4What is trade.mp4Specialization and Trade_ Crash Course Economics #2.mp4
Trade happens when people agree to exchange goods and services. People give up something to get something else. Sometimes people barter, or directly exchange one good or service for another.
Sean and Wanda open their lunch boxes in the school cafeteria. Both of them could be happier with their lunches. Sean wanted broccoli in his lunch and Wanda was hoping for tomatoes. Look at the images of their lunches.
Do people barter today?
Yes! Bartering has been a part of people's lives for thousands of years and is still an important form of trade today.
When people specialize, they make and do the things they are best at instead of making and doing everything on their own.
Imagine Shane and Emmy both like to bake and decide to open a bakery. They want to make as many cakes and pies as they can each day. The table below shows how long it takes each person to make a cake and a pie. Look at the table.
Shane and Emmy want to make as many cakes and pies as they can. If Shane and Emmy each specialize in what they do best, Shane will make cakes and Emmy will make pies.
Do you want to specialize in baking?
If the answer is yes, you can train to be a pastry chef! Many schools offer programs to help you learn the art of food science and baking. According to the American Bakers Association, over 600,000 people were employed in the baking industry in 2016. Many of them specialize in baking certain kinds of food, such as bread, cakes, and pies.
Specialization leads people to trade. People make or do the things they are best at, and then trade to get the other things they want or need. Trade happens in different ways. People can exchange goods or services directly by bartering. Or, they can buy and sell things using money.
Money, money, money!
Different items have been used as money throughout history. Why do you think people moved away from using livestock as money and began using items like shells and beads?
Cows, sheep, camels, and other livestock were used as money in ancient civilizations.
Cowrie shells were first used as money along the coast of Africa, but their use spread to places all around the world.
Some Native Americans used wampum, or colorful strings of beads made from clam shells, as money.
Adam Smith was an important thinker from the 1700s whose ideas about trade influenced many people. The passage below comes from one of his famous books. Read the passage. Then follow the instructions below.
It is a [rule] of every [wise] master of a family, never to attempt to make at home what it will cost him more to make than to buy. The tailor does not attempt to make his own shoes, but buys them [from] the shoemaker. The shoemaker does not attempt to make his own clothes but employs a tailor.
tailor: a person that makes clothes
employs: hires
Adam Smith, The Wealth of Nations
According to Adam Smith, people benefit from specialization and trade. Sometimes, it costs people more to make things themselves. So, they can save money if they buy the things they need from people who specialize in making those things.
The beginning of modern economics!
Adam Smith was an important thinker in Scotland during the 1700s. His book called The Wealth of Nations was published in March 1776, and sold out in only six months!
The book is often named as one of the most important non-fiction books ever written. Many people consider Smith's thoughts in The Wealth of Nations to be the start of the modern study of economics.
The ideas of specialization and trade also apply to countries around the world. International trade happens when goods and services are exchanged between countries. Imports are goods that are brought into countries. Exports are goods that are sent out of countries.
The map shows some examples of goods that countries trade today. The arrows show which directions the goods are usually traded.
What are some of the major imports and exports of the United States?
The United States imports and exports many items. Some of the top imports include electrical machinery, cars, and toys. Some of the top exports include computers, airplanes, and cars. Did you notice the United States both imports and exports a lot of cars?
The United States exports airplanes.
The United States imports toys.
The United States imports and exports cars.
Continue
Countries use their resources to specialize in products they can produce better than other countries.
That's bananas!
Ecuador was the world's leading banana exporter in 2016. A little over 23% of the world's banana exports came from Ecuador. That's around $2.7 billion worth of bananas!
The world's best selling car!
In 2016, the best selling car in the world was the Japanese-made Toyota Corolla. A little over 1.3 million Corollas were registered worldwide in 2016.
How much oil is that?
The amount of oil produced per day in Saudi Arabia in 2016 was enough to fill 655 Olympic-sized swimming pools each day. That is enough oil to power all U.S. auto traffic for 39 hours!
Trade and specialization have been features of civilizations throughout history. For example, between 120 BCE and the 1450s CE many goods were traded along the Silk Road, a network of trade routes linking all of Asia to Europe.
Look at the map showing part of the Silk Road around 1000 CE.
More than goods traveled along the Silk Road!
Goods were not the only things traders carried along the Silk Road. Other things, such as ideas and even diseases, were also passed from one group of people to another.
Disease
The plague bacteria responsible for the Black Death in Europe was spread along the Silk Road. The disease reached Europe around 1340 CE. The bacteria was found mainly in rodents and their fleas and spread to humans through flea bites. An estimated 75 to 200 million people across Europe and Asia died from the disease!
Religion
Buddhism spread to China from India along the Silk Road. At several different times in history, rulers of China tried to discourage people from practicing Buddhism. But Buddhism is still practiced by many people in China today.
International trade and specialization occur because different places have different resources. For example, geography, or features of the land, affects which resources are available and what people can produce with those resources. Look at the map of climates along the Silk Road.
The changing landscape of the Silk Road
The geographic features of places along the Silk Road looked very different. Imagine you are a trader on the Silk Road. What do you think it would be like to walk through these different environments?
A jungle in South Asia
An olive farm in the Middle East
A field with white clay soil used to make porcelain in East Asia
A mountain path connecting China in East Asia to India in South Asia
Even today, geography and climate affect specialization. Different countries specialize in producing crops that grow well in their environment, and then trade with other countries.
Imagine Jamal finds a recipe for shrimp lettuce wraps. To make the recipe, he will need shrimp, cashews, limes, carrots, and lettuce. Jamal goes to the grocery store to buy these ingredients. Many of them are imported from other countries!
The map shows examples of major food exports for several different countries.
What geographic features help these ingredients grow?
The ingredients needed to make shrimp lettuce wraps need very different environments to grow! That's why countries with different climates specialize in producing each item.
Cashew trees need lots of sun and sandy soil to grow.
Limes are very sensitive to cold weather and can only grow outside in warm, mild climates.
Shrimp can grow in different environments all around the world! But most of the shrimp that are farmed are produced in the waters of Asia.
Carrots grow best in full sun and loose, sandy soil. If the soil is packed too tightly, the carrots will grow into balls instead of a long, slender shape!
Along with climate and natural resources, labor is an important resource for countries. Labor refers to the work that people do, such as working in a factory, cutting hair, or teaching school. The cost of labor, or how much people are paid to work, can affect what a country specializes in producing.
The graph below shows the cost of labor to produce clothing in Bangladesh, China, and the United States.
The bars for Bangladesh and China are much shorter than the bars for the United States, showing that the cost of labor to produce clothing is less in Bangladesh and China than in the United States. Since labor costs less, it is cheaper in Bangladesh and China to make clothes. For this reason, these countries export many clothes to the United States.
Specialization and trade can have both costs and benefits.
Trade and transportation
Advances in transportation are one reason countries are more connected and trade more today. Goods made in Europe can arrive in the United States in less than one day. But that has not always been true.
In the 1840s it took more than two weeks for a ship to cross the Atlantic Ocean.
In the early 1900s it took about five days to cross the Atlantic Ocean.
By the 1950s a ship could cross the Atlantic Ocean in three and a half days.
Today, you can fly from New York to London across the Atlantic Ocean in less than seven hours!
The cartoons below each make an argument about international trade.
Where were your favorite things made?
Many goods have information about where they were made on them. Look at the things you have around you right now. Where were they made? How many different countries can you find?
How much does a TV cost?
TVs were once a luxury good, or a very expensive good. TVs cost much less now and are found in countries all around the world because countries specialize and trade!
In the 1940s, a 16-inch TV made in the United States similar to this one would cost the equivalent of more than $7,000 today!
Today, you can buy a 32-inch TV made in China for less than $150!
Trade has many benefits, but there are also some costs to trade, such as individual people losing their jobs. In spite of these costs, many people who study trade believe it makes people better off.
People and countries use their resources to specialize in what they can make or do best. For example, it costs less to make clothes in China and Bangladesh, so those countries specialize in producing clothes. Then, they export those goods and services around the world.
Other countries import these goods and services so their people can get higher quality products at lower costs. For example, the United States imports clothes made in China and Bangladesh, since it's more expensive to make clothes in the United States.
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