A Demonstration of the Gains From Trade: Easter Basket Exchange
Abstract:
This is a classroom experiment using candy to motivate a simple model with obvious gains from trade which stem from differences in tastes. Each student gets an identical endowment of assorted individually wrapped pieces of candy. Students initially identify the amount of money they would be willing to pay for their endowment. Then they are allowed to trade amongst the students in their row. After allowing trade for a few minutes it is halted, and students are again asked how much they would be willing to pay for their candy. The instructor can easily demonstrate the gains from trade by comparing the classroom total before trade and after, it is invariably larger, yet the candy is the same in both cases (so long as the instructor can keep the hungry students from eating the tradable goods). In this framework it is very easy to motivate the gains from trade and the effects of free trade zones, or the distortions caused by tariffs.