ECONOMICS IN ONE DAY - Amazon S3 · belongs to all. It is the main and ... Economics in One Day is...

The Essential Workshop for Teaching Economics

ECONOMICS IN ONE DAY

ECONOMICS IN ONE DAY PAGE 1

“Economics deals with society's fundamental problems: it concerns everyone and belongs to al l . I t is the main and proper study of every c it izen.”

– LU D W I G V O N M I S E S


Economics in One Day

Facilitator’s Workshop Guide

Compiled and written by: Jason Riddle Dan Sanchez

FEE.org/Courses

The Foundation for Economic Education (FEE) is a non-political, non-profit, tax-exempt educational foundation and accepts no taxpayer money. FEE’s mission is to inspire, educate and connect future leaders with the economic, ethical and legal principles of a free society. This work is licensed under a Creative Commons Attribution 4.0 International License, except for material

where copyright is reserved by a party other than FEE.

http://creativecommons.org/licenses/by/4.0/


I NTRODUCTION

W O R K S H O P O V E R V I E W

The free market, rooted in economic freedom, is an essential part of a thriving society. It advances cooperation

and harmony, promotes strong personal character, and is the foundation of economic and social progress. Yet,

millions of students are totally unaware of the wonders and the importance of the free market, because they

are never exposed to the economic way of thinking.

Each year, FEE delivers nationwide seminars on the importance of economic freedom. Students who attend

one of the seminars often say, “Why haven’t I heard about these ideas before?” Unfortunately, FEE cannot reach

everybody through seminars alone. That’s where you come in. The rising generation of young leaders needs

your help.

Economics in One Day is a ready-to-go workshop that provides an inspiring introduction to the principles of

the market economy. It is a 3-5 hour, self-paced learning experience with a focus on the humane value of free

markets. Best of all, this workshop is designed to be delivered by non-economists using interactive, hands-on

activities and guided discussions. This workshop guide contains all the instruction you need to host Economics in One Day for your local audience.

During this 3-5 hour self-paced learning experience, your group will discover:

An introduction to key economic concepts

An inspiring vision of the market economy

The challenges of centralized economic planning

The key role of the entrepreneur in society

The connection between economic freedom and personal character

If you had one day to teach someone about economics, what would tell them?


G E T T I N G T H E M O S T F R O M T H I S W O R K S H O P

The workshop is designed to last 3-5 hours depending on the length of discussion you allow and

whether you use optional video resources.

The workshop is best suited for an audience size of 16-64, however the activities can be run with as

few as 8 participants and can be expanded for larger groups.

The workshop is interactive. It is a hands-on introduction to economics and the market process.

Neither participants nor facilitators need to have any prior background in economics to enjoy this

workshop.

Facilitators have the option to review FEE’s free Economics in One Day Online Course to learn more

about key concepts and learning objectives prior to delivering the workshop. This 4-hour online course

is also great for students to reference after experiencing the Economics in One Day workshop.

I S T H I S W O R K S H O P R I G H T F O R M E ?

Economics in One Day is designed to be a personally relevant learning experience that complements existing

student and teacher goals. These materials are excellent for:

Organizers of community groups (clubs, chapters, meet-ups, etc.) looking for lessons and activities

around economics, personal character, and civil society

Teachers seeking to complement learning objectives taught in introductory-level economics, business,

history, and civics classes

Students interested in learning more about the economic way of thinking

Parents wanting their students to get the most out of life through making better choices and better

understanding the tradeoffs involved with those choices

http://courses.fee.org/courses/economics-in-one-day


P R E P A R I N G T O F A C I L I T A T E T H E W O R K S H O P

This workshop guide contains everything you need to deliver Economics in One Day. Before the workshop

please follow the steps below to prepare for a successful program.

Step 1: Please first review and familiarize yourself with the resources provided.

Resources Provided

Facilitator Guide: Contains all instructions needed to conduct a workshop for your local audience.

Participant Guide: Contains all instructions needed for participants to follow along during the

workshop.

Activity Materials: All physical materials you will need to print to conduct the group activities during

the workshop.

Companion Guide: A brief write-up and collection of articles and videos to serve as an optional resource

for facilitators that provides an overview of key concepts covered in the workshop, and also for

participants to reference after experiencing the workshop.

Feedback Surveys: Pre- and Post-workshop survey questions to collect information about the program

and measure program success.

Step 2: Print and prepare Activity 1 & 2 Materials for the appropriate number of participants in your workshop

according to the instructions provided. The approximate time needed to complete is 20 minutes.

Step 3: Review and prepare Required Materials and Required Pre-activity Preparation for Activity 3 – The

Trading Game.

Step 4: [Optional] This workshop includes optional video and online content. If you would like to use video,

confirm your venue has the appropriate A/V setup and internet connection prior to hosting your workshop.

Step 5: [Optional] Some facilitators may wish to review the Companion Guide and/or Online Course prior to

delivering the workshop for an introduction to key concepts and learning objectives. The approximate time

needed to complete all lessons in the Companion Study Guide is 4 hours.

D E L I V E R I N G T H E W O R K S H O P A S A F A C I L I T A T O R

Here is what you need to know to smoothly deliver the workshop on the day of the program.

Room Setup: You will divide your audience into two teams of eight (Blue and Orange) for Activities 1 & 2. For

larger group sizes, you can assign participants to play the game in pairs or create multiple teams for each color.

Arrange tables and chairs accordingly in your event space to easily conduct these activities.

Video Setup: [Optional] For facilitators projecting optional video and online content to the group, prepare A/V

technology and queue video links prior to starting the workshop.

Faci l i tator Tip: B e s ur e t o c om pl et e th e pr e - a c t iv i ty p r epa ra t i on fo r a l l a c t iv i t i es p ri or

to b eg in ni ng wo rk s hop .



Activity Setup: Before the workshop, arrange the materials for Activities 1, 2, and 3.

Step 1: Separate the Blue and Orange team materials printed for Activity 1 and 2. Place materials, grouped by

team color, in an accessible space in the room. These will be handed out at the start of Activity 1. The Blue and

Orange team should each have the following: 8 full page picture cards for Activity 1, and 4 Pencil Production

sheets, 8 complete sets of Pencil Components cards, and 90 Certificates of Service for Activity 2.

Step 2: Place the Land, Labor, and Capital Transaction Ledgers on an accessible table in the room. This can be

on the same table as the Blue and Orange team materials. Place the individually cut Land, Labor, and Capital

cards just behind each corresponding Transaction Ledger.

Step 3: Separate the Blue and Orange team printed Rule Cards for Activity 2 and place with Facilitator materials.

You will distribute these at the beginning of each round during the Activity 2. Place the Level 1, 2, and 3 Badges

next to the Rule Cards. You will also distribute these after each round in Activity 2.


Using this guide: Here are a few tips for using this Facilitator Guide effectively

As the Facilitator, you should read aloud all lesson introductions, activity instructions, discussion

questions, key concept reviews, and activity recaps as you work through the activities with your

group.

Any text that appears underlined like this is an empty space in the Participant Guide for students to fill

in the blank during the workshop.

Other text that is written in orange like this is for your reference and does not appear in the Participant

Guide. Answers to discussion questions are written in orange. These should only be read after

participants have a chance to offer their own answers. Try to point out connections between the

participants’ answers and the provided answers.

Faci l i tator Tip: You wi l l f in d t ips tha t l ook l i k e t h is thr ough out th e gui de . Th es e a r e

for y our re f er e nc e o nl y a n d s h oul d n ot b e r e a d a l oud t o th e g ro up.


CONTENTS

Introduction ....................................................................................................................................................................................................... 3

Contents ............................................................................................................................................................................................................... 8

Economics in One Day Facilitator’s Script............................................................................................................................................ 9

Introduction ............................................................................................................................................................................................... 11

Activity 1 – Picturing the Process to Make a Pencil .................................................................................................................. 17

Activity 2 – Producing Progress ........................................................................................................................................................ 27

Activity 3 – The Trading Game ........................................................................................................................................................... 45

Closing Discussion ................................................................................................................................................................................... 52

What’s Next? .................................................................................................................................................................................................... 55


ECO NO MICS I N ONE DAY FACI L ITATOR’S SCRIPT

Welcome Welcome to Economics in One Day! In this workshop, we’re going to learn about some basic economic concepts.

Don’t worry, we won’t be staring at charts and equations. Economics is not nearly as boring as you might have

heard. In fact, economics can be exciting and inspiring. Economics is about life, about how people can live

together in friendship and harmony, and about growing rich and fighting poverty at the same time.

We’re going to explore these ideas through a combination of activities and discussion. By the end of this session,

you will be able to explain how economic freedom empowers and uplifts the people of the world.

Overview Today we will learn about some important economic concepts while playing three separate but related games.

In the first game, we will work together in teams to piece together an illustrated story that introduces a few

fundamental economic concepts. In the second game, we will simulate how the goods and services we need are

produced using a simplified representation of an economy. In the third and final game, we will reinforce the

concepts learned throughout the day in a powerful demonstration of how trade creates wealth. In the first two

games, you’ll have chances to earn coupons called “Certificates of Service.” During the third game, you’ll be able

to exchange your Certificates for real prizes you get to keep. So pay close attention during the presentations

and discussions, because the better you do in the first two activities, the more you’ll be able to buy in the third!

Schedule

Welcome and Opening Discussion (30 mins)

Activity 1 - Picturing the Process to Make a Pencil (45 mins)

Activity 2 - Producing Pencils (60-120 mins)

Activity 3 - Trading Game (45 mins)

Closing Discussion (30 mins)

Faci l i tator Tip: This b egi ns you r fa c i l i ta to r ’ s s c r i pt fo r E c on om ic s in O n e Da y . R ea d

the f o l l ow in g a l ou d to your g rou p to o p en th e w ork s h op.


Concepts and Terms Here is a list of the key concepts and terms we will define during the workshop today. Let’s take a moment to

read through it. Please note any terms you do not recognize.

Economics

Scarcity

Choice

Subjective Value

Tradeoffs

Incentives

Voluntary Exchange

Gains from Trade

Specialization and Division of Labor

Emergent Order (Spontaneous Order)

Institutions

Property Rights

Rule of Law

Knowledge Problem

The Seen and Unseen

Entrepreneurship

Our Objectives Today After completing this workshop, you will be able to:

Recognize key economic concepts

Understand the fundamentals of how the market works

Describe the challenges of centralized economic planning

Discuss the important role of the entrepreneur in society

Understand the connection between personal character, free markets, and civil society

Faci l i tator Tip: Al l ow t he gr ou p a b ri ef m in ut e to l ook th rou gh th e t er ms .


INTRODUCTION

Description

Time Required 30 min

L E T ’ S G E T S T A R T E D

The goal for today is to learn how the market empowers you to increase your happiness by increasing the

happiness of others. Economics is a toolbox that helps us figure out how we can best do that.

Shared Values People are very different, but we have a lot of basic things in common. Think back to when you last visited a

busy public place. It could have been a mall, a park, a city street, a movie theater, or even sitting in traffic. Now

most people you saw around you that day were basically decent. Like you, they want their families,

communities, and society in general to be happy. They also hate to see people suffer, and want people in need

to get help. We all share these basic goals. We all want prosperity for humanity.

What qualities does a society need in order to prosper and be truly happy? I bet there are certain basic qualities

that we can all agree on. Let’s make a list together.

Prosperity

Cooperation

Harmony

Order

Opportunity

Responsibility

Freedom

Character

Community

Material well-being

Peace

Tolerance

Mutual Respect

Compassion

Benevolence

Honesty

Fairness

Justice

Equality

Productivity

Integrity

This is a good list! We can call these qualities our Shared Values. That’s a lot we agree on! So why do people

argue all the time over political and economic issues? The problem is, while we agree on these goals, we don’t

Faci l i tator Tip: M a k e a l is t o f a t l ea s t 10 i mp o rta nt va l ues i de nt i f ie d by th e gr ou p. W e

wi l l c o m e ba c k to th is l is t a t th e e nd of th e wo rk s ho p. B el o w is a s a m pl e l is t t ha t migh t

hel p g en e ra t e d is c us s ion . B e s u r e t o a dd t he bol de d i te ms b el o w yo urs el f i f th e

pa rt ic ipa nts d on ’t .

Faci l i tator Tip: In th i s op e ni ng dis c us s i o n, w e wi l l d ef in e ec on o mic s a nd b eg in to

dis c us s why ec o no mic s ma t te rs fo r ou r l i ves .


agree about the best way to reach these goals. What are the rules and policies we should live by to make the

world a better place? What are the rules and policies that would only make things worse?

Well, the good news is that economics can help us answer these questions! Economics can help us understand

how best to achieve our shared values.

Virtues and Character You may have noticed that many of the values we have listed are good personal qualities. Good personal

qualities are called “virtues.” When someone has many virtues, we say that person has strong character.

Is strong character something you are born with or something you can develop?

Just like your physical muscles, your “moral muscles” must be developed by exercising your virtues in

order to develop strong character.

Throughout this workshop, we will consider whether certain social arrangements encourage or discourage the

development of virtue and character.


Choosing Between Paths Throughout history, people have had different ideas about how to achieve a prosperous society. These ideas

can be grouped into two broad approaches. Some think that centralized economic planning (or central

planning) is the best path to achieve our shared values. Some think that the free market economy (or the free

market) is the best path toward those same goals.

Think of our shared values as a destination that we all want to reach together: say the top of a mountain. Now

think of the free market and central planning as different paths we can take to try to reach the mountaintop.

Now some paths lead safely to your destination, while other paths are dangerous or even lead to a dead end.

Does the free market lead to prosperity or poverty? How about central planning? Economics can help us answer

these questions and help us choose the best path forward together. This is why it is a wonderful idea to learn

about economics.

Understanding the Past In order to decide where we want to go, we must first understand where we are and where we’ve come from.

In addition to helping us choose the path in front of us, economics can also shine a light on the path behind us.

In particular, it can explain why some people were either wealthy or poor during certain periods in history.

Let me ask you a question. Would you rather be fabulously wealthy 400 years ago or making minimum wage

in the present? Let’s list some advantages to being rich four centuries in the past that are not available to most

workers today. Facilitator Tip: Be sure to include servants, palaces, etc.

Now let’s list benefits accessible to entry-level workers that did not even exist 400 years ago. Facilitator Tip: Be

sure to include both relatively basic (flushing toilets, electric lighting, etc) and advanced (smartphones, the

internet, modern medicine, etc) technology.

Now that we’ve listed the perks of each, raise your hand if you’d rather be rich 400 years ago. Raise your hand

if you’d rather be an entry-level worker today.

It is plain to see that, at least in America, Europe, and many other places in the world, the vast majority of people

are far wealthier than they were in earlier times. From the dawn of history for thousands of years, most people

were desperately poor and never very far away from starvation. Then about two-hundred years ago, something

changed. Since then, with every passing year, the average person became better fed, better clothed, and better

sheltered. And with every new decade, people had access to new technology that would have seemed like magic

before.

The big question is: What changed? What deserves the credit for the new rising prosperity? Should the free

market get the credit or central planning? Economics can answer this question as well.

Optional Video Introduction: Over the past 200 years the rich have indeed become richer. But in relative terms,

economic growth has mostly helped the poor. This may seem surprising, so let’s watch a brief video to visualize

the wealth creation of the past two centuries.

VIDEO: Hans Rosling's 200 Countries, 200 Years, 4 Minutes - The Joy of Stats (BBC, 4:47 min)

[http://at.fee.org/1R0xSDB]

https://www.youtube.com/watch?v=jbkSRLYSojo


According to the World Bank, “less than 10 percent of the world’s population will be living in extreme poverty

by the end of 2015.” Some estimates project extreme poverty to be eliminated by 2030.

During the current era of globalized trade, we have seen the largest reduction in poverty in world history.

Standards of living are skyrocketing. We also now see the world’s least well-off countries catching up with the

richest countries in terms of human well-being.

Optional Video Introduction: Let’s watch another brief video explaining the miraculous “hockey stick” of human

prosperity.

VIDEO: The Hockey Stick of Human Prosperity (Marginal Revolution University, 4:54 min)

[http://at.fee.org/1Oml1kM]

http://www.bbc.com/news/world-34440567

https://www.youtube.com/watch?v=t9FSnvtcEbg


The Free Market vs. Central Planning Will human prosperity continue to rise: maybe even faster? Or will it come to a stand-still and even decline?

That is up to you and your generation. It depends on the choices you all make in the future.

Again, the basic choice is between free markets and centralized economic planning. Which of these two

approaches is the best path toward our shared values? We made a pretty big list, so to make it easier, let’s

narrow it down to four of our shared values and their opposites.

Prosperity vs. Poverty

Harmony vs. Conflict

Cooperation vs. Isolation

Order vs. Chaos

Let’s start with central planning. Central planning occurs when a few people design, manage, or regulate certain

economic decisions for the many. For example, does this aluminum go toward making cars or soda cans? How

should people pay for the health care they need? Should we invest more in either schools or hospitals? What

should be the minimum wage employers are allowed to pay workers? Who should be allowed to start a hair

braiding business? Under the central planning approach, these kinds of decisions are made by a few people:

namely, the government. In some societies, the government may attempt to make complicated economic

decisions based on the will of the people. In others, the decisions may be made by an authoritarian ruler. In

both cases, economic affairs are centrally orchestrated in an attempt to accomplish a master plan.

Now you might think this arrangement would lead to order, harmony, and cooperation. After all, everything

follows the same plan. And so you might think this system would be very efficient, leading to greater prosperity.

Now let’s consider the free market. In a free market, there is still economic planning, but each person plans for

him or herself. There is no central plan or design. All economic decisions are personal and voluntary. But this

doesn’t mean people can do whatever they want. Everybody must follow certain basic rules. They must respect

everyone else’s personal liberty and private property. Within those rules, people are free to follow their

ambitions and plan for the future they want. Nobody is forced to follow the plans of a few powerful people.

Economic decision-making is the result of voluntary, private cooperation. Whether aluminum goes toward

making cars or soda cans is not decided by some central planner, but by the resource owners alone (although

their decisions are influenced by others, especially their customers).

You might think this arrangement would lead to chaos, conflict, and isolation. Why would people cooperate if

there was nobody directing them to work together? Is the free market unfair? Would some people benefit at

the expense of others? Would those with money and power get richer while the poor get poorer? Does market

competition destroy community? How would a society even know what and how much to produce if there is

no central plan?

Let’s see. Let’s consider how a cheap and seemingly simple item is produced in today’s economy. And let’s see

what that tells us about the free market vs. central planning.

Faci l i tator Tip: Writ e o ra n ge wo rds o n t he bo a rd .


Civil Society But, before we move on to our first activity, a note about community. Not everything in social life is about mass

production. Civil society is also hugely important. Civil society includes all voluntary associations: the family,

religious groups, charities, clubs, etc. Civil society provides help and security for the individual. So when we

compare social cooperation under different economic systems, we must also consider civil society. Does civil

society thrive best in the free market or under central planning?


ACTIVIT Y 1 – P ICTURING THE PROCES S TO MAKE A PENCIL

“Simple? Yet , not a single person on the face of this earth knows how to make [a pencil ] . ”

– LE O NA R D E . R EA D , I , P E N C I L : M Y F A M I LY T R E E

Description During this activity, we will introduce the themes of Leonard Read’s classic essay I, Pencil. It may seem like a

simple object, but a pencil is the result of a coordination of thousands of activities by people who have never

even met. What is perhaps more amazing, is the absence of any single mastermind directing these people how

to coordinate their activities. By following the production of an ordinary pencil, Read’s story provides a simple

yet elegant account of the wonders made possible by cooperation through voluntary exchange.

Time Required 45 mins

Faci l i tator Tip: A fter the a c t iv i ty , g rou ps wis hi n g t o s ho w v id e os du ri ng to da y ’s

wo rk s ho p wi l l t he n wa tc h a n d dis c us s a b ri e f v id eo f ro m th e C o mp e ti t i ve E nt er p ris e

Ins t i tut e a da p t ed f rom L e ona rd R ea d’s es s a y .

http://fee.org/library/detail/i-pencil-audio-pdf-and-html


Facilitator Overview

Pre-Activity Discussion What are the parts of a pencil? What jobs, materials, and tools were involved in making those parts? Now

consider the production of those materials and tools. What was needed to make them?

Let’s take 5 minutes to brainstorm all the jobs, materials, and tools involved in producing a pencil. Don’t limit

yourselves to only thinking of the pencil factory. Think about the where the wood came from. How did it get to

the factory?

As complicated as all this seems, it’s even more complicated than that, as we’ll see in the next activity.

Every single step in the pencil-making process involves the work and skill of many people. Millions of people

have each devoted only a few seconds of their time all toward one purpose: the creation of a single pencil.

Would you call that order? Cooperation? Does the process sound harmonious?

Now, keep in mind that the whole process of manufacturing this pencil had no single mastermind. We don’t

have an International Department of Pencils directing the whole thing. Pencil production goes on every day

without central planning, and yet is orderly, cooperative, and harmonious.

Now think about all the things you use on any given day. Many of those things are more complicated than a

pencil, and most of them are also the result of millions of people cooperating without central direction.

So, can order, cooperation, harmony, and prosperity arise out of the free market?

What if pencil production was centrally planned? Would it work as well as in a free market? The next activity

will help us think about that question.

Faci l i tator Tip: F or th i s a c t iv i ty , y ou wi l l d iv id e th e g r oup i nt o tw o t ea ms (B l ue a nd

Ora ng e ) . E a c h t ea m w i l l be ta s k e d w ith put t i ng a s et of p ic tu r es i n the c or r ec t or de r

to t el l th e s t ory of I , P e nc i l . Th e B l u e tea m w i l l s i mul a t e a s im pl i f i e d ve rs i on of t he

ma rk et p roc e s s wh er e the l oc a l k n o wl e dg e of pric es h el ps in div i dua l s c oo rdi na t e th ei r

a c t iv i t ies to ma k e a p e nc i l . Th e “c l ues ” o n the ba c k of the pic t ur e r e pr es e nt l oc a l

k no wl e dg e tha t ne e ds to b e us ed t o m ee t th e c ha l l e ng es of a c om pl ex ec o no my. T he

Ora ng e t ea m w i l l s imu l a te a s i mpl i f i ed v e rs i on of a p l a nn e d ec o no my. Th e “c en tra l

p l a n ne r” wi l l a t t e mpt t o c oo rdi na t e th e a c t i v i t ies o f th e p e nc i l ma k i n g pr oc es s wi thou t

the l oc a l k n owl e dg e o f p ric es ( wit hou t th e c l ues ) . A ft er th e t ea m s ha ve c o rr ec t l y

ord e r ed th e pic tu r es , t ea m me m be rs wi l l r ea d a l ou d th e na r ra t iv e o n th e ba c k o f ea c h

pic tu r e to i nt rod uc e th e s to ry a nd l es s o n o f I , P e nc i l .

Faci l i tator Tip: Al l ow s tud en ts to a ns w er .

Faci l i tator Tip: Al l ow s tud en ts to b ra i ns t or m. R ev i ew r es ul ts t og et h er .


Activity Instructions 1. Divide the group into teams of 8. Assign half of the teams as Blue team. Assign the other half as Orange

team. Note for different group sizes: You can assign participants to play the game in pairs of two or

create multiple teams depending on your group size. If you only have 8 participants, have them try the

activity as the Orange team first, and then they play as the Blue team.

2. Shuffle and Distribute one set of Blue pictures to each Blue team, and one set of Orange pictures to

each Orange team.

3. Read the following instructions aloud to the group:

a. There is no talking allowed during the first part of this activity.

b. Each person (or pair) will take one picture from the set and to study the picture without

sharing any information on the back of the page with anyone else in the group.

c. On the front of your paper is a picture. On the back is a clue and a brief narrative. The goal of

this game is to put the pictures in the correct order to tell the story of how an ordinary pencil

is made. Here is the catch: You are NOT allowed to talk or communicate with anyone on your

team other than to show them your picture. You are not allowed to share the clue on your

paper with anyone else.

d. When I say “begin” your team will try to put the pictures in the correct order as quickly as

possible. The first team to put the pictures in order telling the story of how a pencil is made

will win 4 Certificates of Service which will be used later to purchase prizes from the

Marketplace.

e. Here is your only hint: The picture of the family tree is the first picture in the story.

f. On the Orange team, the person holding the picture of the family tree is the Central Planner.

He or she is in charge of putting the rest of the pictures in the correct order. Team members

must come up to the Central Planner one at a time to share their clue. The Central Planner will

then direct each team to correctly order the pictures in the story.

g. On the Blue team you will each use the clues on the back of your paper to try to properly order

yourselves as a group. Remember, you are not allowed to share your clue with others on your

team.

h. When you think your group has your pictures in the correct order, please raise your hands.

Remember, there is no talking or sharing clues allowed.

i. Ok, ready? Begin!

4. Monitor the teams. When the first group raises their hands, tell the other groups to freeze while you

verify the correct order (Answer Key below).

5. Once the correct order has been verified, tell the other groups to order themselves to match the picture

order from the winning group.

6. Ask the winning team (should be the Blue team) to read aloud the now correctly ordered narratives

on the back of their pictures to introduce the key concepts for the day.

7. Ask the other team (should be the Orange team) to read aloud the now correctly ordered narratives

on the back of their pictures once the Blue team has completed.

Faci l i tator Tip: F ol l ow th e i ns t ruc t i ons b e l ow to l ea d A c t iv i t y 1 . O nl y r ea d th e

ins t ruc t io ns a l o ud wh e n in dic a t ed .


8. After the Blue and Orange teams have read their cards, give everyone 4 Certificates of Service for

helping to tell such a beautiful story! Give the winning team 1 extra Certificate of Service for skillfully

ordering their pictures first.

Answer Key

1

2

3

4

5

6

7

8

Faci l i tator Tip: B el ow is t he a ns w e r k ey fo r A c t iv i ty 1 s ho wi ng th e p ro p er o rd e r of

p ic tu r es .


Narrative Cards and Clues for Activity 1 – Picturing the Process to Make a Pencil Blue Team (Simulating Market Process):

Card 1

Clue: Your picture our story begins, the next is a picture of graphite mining equipment.

Narrative: I am a lead pencil—the ordinary wooden pencil familiar to all boys and girls and adults who

can read and write. I, Pencil, simple though I appear to be, merit your wonder and awe, a claim I shall

attempt to prove. I have a profound lesson to teach. And I can teach this lesson better than can an

automobile or an airplane or a mechanical dishwasher because—well, because I am seemingly so

simple. Simple? Yet, not a single person on the face of this earth knows how to make me. This sounds

fantastic, doesn’t it? Especially when it is realized that there are about one and one-half billion of my

kind produced in the U.S.A. each year.

Card 2

Clue: Your picture follows that of the family tree. After mining, the graphite is loaded into a truck to

carry.

Narrative: My family tree begins with what in fact is a tree, a cedar of straight grain that grows in

Northern California and Oregon. Now consider all the saws and trucks and rope and the countless other

gear used in harvesting and carting the cedar logs to the railroad siding. Think of all the persons and

the numberless skills that went into their fabrication: the mining of ore, the making of steel and its

refinement into saws, axes, motors. Why, untold thousands of persons had a hand in every cup of coffee

the loggers drink!

Card 3

· Clue: After the graphite is mined it is put in your truck. Next a tree is cut down with a saw if you have

any luck.

· Narrative: The logs are shipped to a mill in San Leandro, California. Can you imagine the individuals

who make flat cars and rails and railroad engines and who construct and install the communication

systems needed? Thousands more were involved in creating and transporting these materials.

Card 4

· Clue: Your picture is between the trucks two in number. The first filled with graphite and the second

with lumber.

· Narrative: Consider the millwork in San Leandro. The cedar logs are cut into small, pencil-length slats

less than one-fourth of an inch in thickness. These are kiln dried and then tinted. How many skills

went into the making of the tint and the kilns, into supplying the heat, the light and power, the belts,

motors, and all the other things a mill requires? Yes, and included among my ancestors are the men

who poured the concrete for the dam of a Pacific Gas & Electric Company hydroplant which supplies

the mill’s power!

Faci l i tator Tip: B el ow i s a l is t o f th e c l u es a n d na r ra t iv es w ri t t en o n th e ba c k o f ea c h

pic tu r e fo r A c t iv i ty 1 - P ic t ur in g t he P roc es s to M a k e a Pe nc i l . T h es e c a r ds tel l th e

s tor y of I , P enc i l , a c l a s s ic es s a y b y L e ona rd R ea d, l i ght l y edi t ed h er e f or a c c es s i bi l i t y .

B e s ur e t o r ea d a l o ng w ith th e s tu de nts , a nd h el p th e m p ro nou nc e a n y t ec h nic a l w or ds

the y ha ve di f f ic u l t y w i th . I nfo r m th e s tu de nt s tha t th is wa s w ri t t e n i n 19 58, a nd t ha t

the c u rr e nt c o mpl exi t y a n d qua nt i t i es in vol ved i n p e nc i l pr oduc t i on a r e e ve n mo r e

a s toun di ng!


Card 5

· Clue: Your picture comes after the tree is cut with a saw blade and before the picture of plans for the

pencils to be made.

· Narrative: Once in the pencil factory, each slat is given eight grooves by a complex machine, after

which another machine lays leads in every other slat, applies glue, and places another slat atop—a

lead sandwich, so to speak. Seven brothers and I are mechanically carved from this “wood-clinched”

sandwich.

Card 6

· Clue: In this story, your picture comes after the lumber truck and before the erasers are cut.

· Narrative: My “lead” itself—it contains no lead at all—is complex. The graphite is mined in Sri Lanka.

Consider these miners and those who make their many tools and the makers of the paper sacks in

which the graphite is shipped and those who make the string that ties the sacks and those who put

them aboard ships and those who make the ships. Even the lighthouse keepers along the way assisted

in my birth.

Card 7

· Clue: Here is your hint, your picture comes before the pencil is completed but after the design

blueprint.

· Narrative: The graphite is mixed with clay from Mississippi in which ammonium hydroxide is used in

the refining process. After passing through numerous machines, the mixture finally appears as endless

extrusions—as from a sausage grinder—cut to size, dried, and baked for several hours at 1,850

degrees Fahrenheit. To increase their strength and smoothness the leads are then treated with a hot

mixture which includes wax from Mexico and hydrogenated natural fats.

Card 8

· Clue: Right after the erasers are cut to the right size, yours is the final picture in this pencil making

enterprise.

· Narrative: My cedar receives six coats of lacquer. Do you know all the ingredients of lacquer? Who

would think that the growers of castor beans and the refiners of castor oil are a part of it? They are.

Why, even the processes by which the lacquer is made a beautiful yellow involve the skills of more

persons than one can enumerate!

Orange Team (Simulating Central Planning):

Card 1

· Clue: Your picture our story begins, the next is a picture of graphite mining equipment.

· Narrative: Observe the labeling. That’s a film formed by applying heat to carbon black mixed with

resins. How do you make resins and what, pray, is carbon black? My bit of metal—the ferrule—is

brass. Think of all the persons who mine zinc and copper and those who have the skills to make shiny

sheet brass from these products of nature. Those black rings on my ferrule are black nickel. What is

black nickel and how is it applied? The complete story of why the center of my ferrule has no black

nickel on it would take pages to explain.

Card 2

· Clue: Your picture follows that of the family tree. After mining, the graphite is loaded into a truck to

carry.

· Narrative: Then there’s my crowning glory, inelegantly referred to in the trade as “the plug,” the part

man uses to erase the errors he makes with me. An ingredient called “factice” is what does the erasing.


It is a rubber-like product made by reacting colza oil from Indonesia with sulfur chloride. Rubber,

contrary to the common notion, is only for binding purposes. The pumice comes from Italy; and the

pigment which gives “the plug” its color is cadmium sulfide.

Card 3

· Clue: After the graphite is mined it is put in your truck. Next a tree is cut down with a saw if you have

any luck.

· Narrative: Does anyone wish to challenge my earlier assertion that no single person on the face of this

earth knows how to make me? Actually, millions of human beings have had a hand in my creation, no

one of whom even knows more than a very few of the others. Now, you may say that I go too far in

relating the picker of a coffee berry in far-off Brazil and food growers elsewhere to my creation; that

this is an extreme position. I shall stand by my claim. There isn’t a single person in all these millions,

including the president of the pencil company, who contributes more than a tiny, infinitesimal bit of

know-how. From the standpoint of know-how the only difference between the miner of graphite in

Sri Lanka and the logger in Oregon is in the type of know-how. Neither the miner nor the logger can

be dispensed with, any more than can the chemist at the factory or the worker in the oil field.

Card 4

· Clue: Your picture is between the trucks two in number. The first filled with graphite and the second

with lumber.

· Narrative: Here is an astounding fact: Neither the worker in the oil field nor the chemist nor the digger

of graphite or clay nor any who mans or makes the ships or trains or trucks nor the one who runs the

machine that does the knurling on my bit of metal nor the president of the company performs his

singular task because he wants me. Each one wants me less, perhaps, than does a child in the first

grade. Indeed, there are some among this vast multitude who never saw a pencil nor would they know

how to use one. Their motivation is other than me. Perhaps it is something like this: Each of these

millions sees that he can thus exchange his tiny know-how for the goods and services he needs or

wants. I may or may not be among these items.

Card 5

· Clue: Your picture comes after the tree is cut with a saw blade and before the picture of plans for the

pencils to be made.

· Narrative: There is a fact still more astounding: The absence of a master mind, of anyone dictating or

forcibly directing these countless actions which bring me into being. No trace of such a person can be

found. Instead, we find the Invisible Hand at work.

Card 6

· Clue: In this story, your picture comes after the lumber truck and before the erasers are cut.

· Narrative: I, Pencil, am a complex combination of miracles: a tree, zinc, copper, graphite, and so on.

But to these miracles which manifest themselves in Nature an even more extraordinary miracle has

been added: the configuration of creative human energies—millions of tiny know-hows configuring

naturally and spontaneously in response to human necessity and desire and in the absence of any

human masterminding!

Card 7

· Clue: Here is your hint, your picture comes before the pencil is completed but after the design

blueprint.

· Narrative: If one is aware that these know-hows will naturally, yes, automatically, arrange themselves

into creative and productive patterns in response to human necessity and demand— that is, in the


absence of governmental or any other coercive master-minding—then one will possess an absolutely

essential ingredient for freedom: a faith in free people. Freedom is impossible without this faith.

Card 8

· Clue: Right after the erasers are cut to the right size, yours is the final picture in this pencil making

enterprise.

· Narrative: The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize

society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best

it can. Permit these creative know-hows freely to flow. Then gaze upon the wonders that follow. Watch

as millions, without even meeting one another, cooperate to efficiently produce every single item in a

great flood of useful goods and services. I, Pencil, seemingly simple though I am, offer the marvel of

my creation as testimony to the power of freedom.

Optional Videos and Article Some facilitators may choose to show this brief video to the group. Others may share Leonard Read’s original

essay.

VIDEO: I, Pencil: The Movie (Competitive Enterprise Institute, 6:32 min)

[http://at.fee.org/1WtBN3N]

ARTICLE: I, Pencil: My Family Tree - Leonard Read (FEE.org, 5 pages)

[http://at.fee.org/1yAq6Jf]

Here is an additional optional video that shows how difficult it would be to produce a basic sandwich without

economic cooperation:

Video: How to Make a $1500 Sandwich in Only 6 Months (How To Make Everything, 3:44 min)

[http://at.fee.org/1siuArB]

Faci l i tator Tip: I f yo u do s ho w H ow to M a k e a $1 500 Sa n dw ic h , a s k th e pa r t ic i pa n ts

how th e s a n dw ic h ma k er ma y ha v e “c h ea t ed ” (us ed pr oduc ts a l r ea d y c r ea t ed thr ough

ec o no mic c oo p era t io n ) .

https://www.youtube.com/watch?v=IYO3tOqDISE

http://fee.org/library/detail/i-pencil-audio-pdf-and-html

https://youtu.be/URvWSsAgtJE


Post-Activity Discussion

Let’s take a few minutes for discussion about what we’ve learned from the first activity.

1. Between the blue team and the orange team, which represented the free market and which represented central planning?

a. The blue team represented the free market and the orange team represented central planning..

2. The blue team had no central control, and yet it beat the orange team which did. Why do you think that is?

a. In the blue team, knowledge and decision-making was spread out among all the team members. Each

member was free to act according to his or her special knowledge to coordinate with others on the

team.

b. In the orange team, decision-making was centralized in the team’s Central Planner, who did not have

easy access to the relevant knowledge which made coordination difficult.

c. The knowledge of the specific needs of people in society is spread out in tiny bits throughout an

economy inside the minds of individuals. This issue is called the “knowledge problem.” One of the main

problems all central planners face is how to address the inescapable challenge of the knowledge

problem.

3. This game was extremely simple and stable compared to the real world challenges of pencil production. The real world is not only far more complex, but it is constantly changing. Do you think this makes the knowledge problem better or worse for a central planner? If there was a central planner in full control of pencil production, what do you think would be the result? Why?

a. Greater complexity would make the knowledge problem worse.

b. Each person has unique knowledge of his or her needs amidst constantly changing circumstances. It is

impossible for the central planner to access the special knowledge possessed by the millions of

individuals in the pencil’s family tree. And it is even more impossible for the central planner to

constantly update that knowledge fast enough to keep up with constantly changing circumstances.

c. In this activity it was difficult for the central planner to organize the group, but in a complex economy

it is literally impossible for the central planner to access the special knowledge possessed by the

millions of individuals in the pencil’s family tree. If there were a single person, board, or committee in

full control of pencil production it is not likely that a pencil would ever get produced as effectively and

inexpensively as it is today in the market.

4. The activity of the blue team might have seemed chaotic. Nobody was in charge. And yet it was actually very orderly, cooperative, harmonious, and effective. It worked. When order arises (or emerges) out of the interactions of the many without a central plan imposed by the few, that is called emergent order, or spontaneous order. Other examples of spontaneous order include language, manners, morals, and fashion.

Facilitator’s Note: If you sense the audience is ready to, let them discuss how the above qualify as

spontaneous order.

5. What do you think about the claim that not a single person on the face of the earth has the knowledge required to make an ordinary pencil?

Faci l i tator Tip: L ea d t he gr oup i n a d is c us s ion o f t he I , P e nc i l s t ory . B el o w ea c h

qu es t i o n a r e a ns w ers t o h el p gui d e th e d is c u s s ion a r ou nd k ey c o nc ep ts a nd l ea rn in g

ob jec t iv es .


a. A countless number of people had a hand in making the pencil through the contributions of their work

and knowledge.

b. In this vast process, each person supplies only a small amount of the necessary knowledge it takes to

make a pencil. There isn't a single person in all these millions, including the president of the pencil

company, who contributes more than a tiny, infinitesimal bit of know-how to the process.

c. Where would one person even start? The wood comes from cedar trees in the Pacific Northwest. The

metal to make the ferule are mined from all different parts of the world. The ingredients for the rubber

are sourced from across the globe as well. The graphite is mined in China and Sri Lanka.

6. Even if you did have the knowledge to make a pencil, would you spend your time doing so? Why or why not?

a. It would take an incredible amount of time and money to get the necessary materials. Where would

you even begin if you had to produce the tools and equipment necessary to obtain and transport the

materials?

b. Even if you knew exactly how to build a pencil it could take you an entire lifetime to build a pencil that

you can find at your local store. If you were to spend all of your time building a pencil from scratch,

you would not have time for any of the other things you enjoy doing.

7. Let’s not forget to consider personal character. Responsibility is a very important virtue. Do you think spending every working day following a central planner’s orders would help someone develop personal responsibility? Or would responsibility be better developed in a free market in which a person must make decisions about how to contribute to society?

One must experience responsibility to learn to be responsible. There is far less responsibility involved

in merely following orders. And there is far more responsibility involved in economic freedom. A

worker in the free market is responsible not only for how to do his/her job, but for finding and choosing

that job in the first place. A business person is responsible for making decisions about hiring,

purchasing, production methods, new products, etc.

8. In the free market, we see large scale cooperation among strangers. Does that mean that a society with a free market cannot have small scale cooperation among friends and neighbors?

In a free society, all kinds of voluntary associations are allowed. This includes both commercial and

non-commercial relations. If there is a good or service that the market isn’t providing, people are free

to form not-for-profit organizations that provide it very cheaply or for free.


Key Concepts Before moving on to the next activity, let’s review a few key concepts that serve as the foundation for

understanding economic behavior.

1. What is economics?

Economics is the study of human behavior when choice is involved.

2. Human behavior involving choice is called action. Humans act when…

They are not perfectly content with the present circumstances.

They can imagine a way to improve their situation.

They believe their action can succeed in reaching that desired state.

Note: Humans act intentionally, but this does not mean that people are perfectly wise and

never make mistakes!

3. Why should good economists always ask the question, “Compared to what?”

All economic questions arise from the problem of scarcity. Scarcity exists because we live in a world of

limited resources that have alternative uses. Our wants and needs are virtually unlimited.

The existence of scarcity means that we have to make choices because not all of our desires can be

satisfied at the same time.

Note: Scarcity is an unavoidable part of life. Scarcity and poverty are not the same thing!

Absence of poverty implies some basic level of need has been met. We may someday eliminate

poverty, but scarcity will always be with us.

Because we are faced with the fundamental economic problem of scarcity, we have to make choices

and every choice involves a tradeoff.

Activity Recap

Emergent order (spontaneous order) occurs when an unplanned order emerges from individuals

following their own plans.

The knowledge problem exists because the special bits of knowledge for dealing with complex

economic challenges are spread out among the minds of many individuals.

Not a single person has the knowledge to make even a simple pencil. The products we enjoy are

the result of a symphony of human activity that spans the globe.

ACTIVIT Y 2 – PRODUC ING PROGRESS


Description

The goal for this activity is to increase your well-being and happiness while increasing the well-being and

happiness of others in your society. You and your group will play a key role in producing progress to help

realize the vision of a better world for all people.

In this activity, we will simulate how an economy works. You will work to combine resources to produce

pencils in order to earn Certificates of Service. Remember, these Certificates of Service are yours to keep and

will be redeemable for real prizes during the Trading Game in the next activity. Not only are you producing

pencils to create value for yourself, the pencils your group produces will unlock the benefits of economic

growth for your society in this activity.

Time Required

60 – 120 min


R O U N D 1 ( T H E M A R K E T )

Optional Video Some facilitators may choose to show this brief video to the group to introduce the themes of Activity 2. Hans

Rosling makes the case that the washing machine was the greatest invention of the industrial revolution.

VIDEO: Hans Rosling: The magic washing machine (TED, 5:43 min)

[http://at.fee.org/1ZKOJR6]

Activity Instructions 1. Divide the group into teams of 8 using the same teams from Activity 1. Assign half of the teams to be a

“Blue team.” Assign the other half as an “Orange team.” Note for different group sizes: You can assign

participants to play the game in pairs of two or create multiple teams depending on your group size. If

you only have 8 participants, assign 4 to play the Blue team and 4 to play the Orange team.

2. Distribute the Blue Activity Materials to the Blue team(s) and the Orange Activity Materials to the

Orange team(s). Each group should receive 4 Pencil Production sheets, 8 complete sets of Pencil

Components cards, and 8 Labor Cards per participant. The Pencil Component cards will be “produced”

using Land, Labor, and Capital, and Certificates of Service will be earned by participants during the

activity. Each participant will start with 8 Labor, but will use the labor to acquire land and capital,

which will be used to make pencil components. Each participant and each team will have certain

production abilities as indicated on their production card.

3. The Orange and Blue Teams have comparative advantages in producing certain pencil components.

Also, individual team members have comparative advantages in producing either Land or Capital. The

teams can trade produced pencil components, but not the Land, Labor, and Capital cards. Team

members may collaborate in the production of a pencil component, but cannot trade the Land, Labor,

and Capital cards.

4. Read the following instructions to the group:

a. In the Producing Progress Activity, we will use resources to create pencils. The resources used

to produce the goods and services people want are called the factors of production. The three

factors of production are land, labor, and capital. Land is the natural occurring resources like

water, air, soil, minerals, plants, and animals used in the creation of products. Labor is the

physical and mental human effort used in production. Capital is the man-made goods like

machinery and tools used in the production of other goods. For example, land includes the

mines out of which aluminum for eraser-holders is drawn, labor includes the work of miners,

and capital includes the picks and other tools used by the miners.

b. The Producing Progress Activity consists of three rounds. Each round will have different rules

that you will receive at the beginning of each round.

c. Throughout this activity, you will be working to produce pencils. You will combine the factors

of production (land, labor, and capital) to create each of the four pencil components (graphite,

wood, aluminum, and rubber). You make a pencil by combining the pictures of graphite, wood,

aluminum, and rubber to complete the set. For this imaginary society, pencils are everything.

Pencils are education, healthcare, food, and entertainment. Everything is a pencil. Obviously,

this activity is a highly simplified version of how an economy works in order to show the

essentials of the value creation process. It is not meant to be a precise representation of how

a complex economy operates.

Faci l i tator Tip: F ol l ow th e i ns t ruc t i ons b e l ow to l ea d A c t iv i t y 2 . O nl y r ea d th e

ins t ruc t io ns a l o ud wh e n in dic a t ed .

https://www.youtube.com/watch?v=BZoKfap4g4w


d. You have been divided into teams. During this activity you have individual goals and team

goals. Your individual goal is to earn as many Certificates of Service as possible. These will be

redeemable for prizes in the next activity. The team goal is to generate enough economic

growth to earn a Level 3 Modern Economy Badge. Individuals and groups earn additional

benefits by creating enough pencils to unlock economic and social achievements through

Level-1, Level-2, and Level-3 Badges.

e. You may keep the Certificates of Service you earn, as well as full and partial pencils you have

produced from one round to the next. You can also save your Land, Labor, and Capital cards

from one round to the next.

5. Read the summary and benefits of the Level-1, Level-2, and Level-3 Badges.

a. Our starting point is bleak, but we will try to make a better world by creating wealth. In your

society, the average life expectancy is about 49 years. 28% of children are underweight and 1

out of every 20 children die before the age of 5. People in your society live on just a few dollars

a day, and 2/3 of your income is spent on food. Only 2% of your income goes toward education.

Only about half the people in your society can read. This has been the typical life experience

for most people throughout history.

b. But, we can produce prosperity. Your team can earn a Level-1 Energy Badge after you produce

2 pencils. For “leveling up” everyone on your team earns 1 bonus Certificate of Service. At this

level, you have become productive enough to harness modern energy and no longer rely on

biofuel as your main source of energy. Your workers are more productive and earn more. Most

people in your society are now above the poverty line, and on average people in your society

live on $10/day. Life expectancy is now at about 73 years. 66% of people in your society now

complete primary education.

c. Your team earns a Level-2 Washing Machine Badge after you produce a total of 4 pencils. At

this level, most people in your society now consider themselves middle class and have

washing machines, refrigerators, and cars. On average people in your society live on $40/day.

The average life expectancy is about 78 years. People are now able to afford meat, toothpaste,

and air conditioners. Everyone on your team earns 1 bonus Certificate of Service for reaching

Level 2.

d. Your team earns a Level-3 Modern Economy Badge after you produce a total of 6 pencils. At

this advanced stage, your society has created enough value to unlock the benefits of a wealthy,

modern economy. On average people in your society live on $80/day. Life expectancy has

increased to about 84 years. The literacy rate is at about 90%. Most people in your country

now have internet and cellphones. There is not much disparity between male and females in

terms of amount of schooling, income, or life expectancy. Work weeks are shorter and most

people even take vacations during the year. Everyone on your team earns 1 bonus Certificate

of Service for reaching Level 3.

6. We are now ready to start the activity! Begin by handing out the Round 1 Rules for the Orange team

and the Blue team. Read the rules as a group and start the activity when you are ready!

Round 1 Rules:

a. You will have 10 minutes in Round 1 to create pencils. Remember, the only consumer good in

this imaginary economy is the pencil. For this society, pencils are everything. Pencils are

education, healthcare, food, entertainment, etc.

b. You earn 2 Certificates of Service for contributing all of one factor necessary for a completed

pencil component (graphite, wood, aluminum, or rubber) your team places on the Pencil

Production Sheet. Partial contributions of a factor earn 1 Certificate of Service.

c. You start with 8 Labor, but will use the labor to acquire land and capital, which will then be

used to make pencil components. Each participant and each team will have certain production

capabilities as indicated on their production sheet.

d. To produce a finished pencil your team must combine one each of the four pencil components

(graphite, wood, aluminum, and rubber) and place them on the Pencil Production Sheet.


e. You may not trade the factors of production (Land, Labor, and Capital), but you may trade

completed pencil components between teams. Team members may work together to make

partial or whole contributions of the required factors to make a pencil component.

f. Your team goal for Round 1 is to earn a Level-1 Energy Badge by creating 2 complete pencils

in order to receive the team bonus for leveling up.

7. Allow the participants to do a 5-minute practice round. At the end of the practice round, make sure

each team returns any land, capital, or pencil components. Also make sure each participant has 8 Labor

to begin Round 1.

8. At the end of Round 1, review each team’s progress and award team production Badges based on total

pencils produced. Ask one person to read the Level-1 Energy Badge accomplishments to the group.

9. Discuss the experience of Round 1 using the questions on the next page to guide your discussion.


Discussion for Round 1 Let’s discuss what we’ve learned from Round 1:

1. Who was able to create value and improve the well-being of yourself and for people in your society?

a. Facilitator Tip: Ask for volunteers to share how they were able to create value. Participants should have

earned an individual profit and their society should have created enough pencils to earn a Level – 1

Energy Badge. Ask one team to read about the benefits they were able to unlock with economic growth.

2. Scarcity occurs when there are limited resources with alternative uses to satisfy our virtually unlimited wants and needs. Scarcity is an inescapable fact of reality and a fundamental part of the human condition. All human action involves coping with scarcity. The challenge of scarcity is why individuals must take care how they use the resources available to them. Economics is thinking logically about the various ways of dealing with scarcity: production, exchange, etc. If there were no scarcity, then there would be no economic problems and nothing for economics to study. Name the scarce resources in this activity.

a. Scarce resources in this activity include: Your time, money (Certificates of Service), the factors of

production (land, labor, capital), the pencil components (graphite, wood, aluminum, rubber).

3. The unavoidable reality of scarcity forces us to make choices, and every choice involves a tradeoff. A tradeoff or opportunity cost is the alternative we give up when we pursue a certain course of action. It’s what you have to give up to get what you want. Because every decision we make involves tradeoffs, the first question a good economist usually asks is, “Compared to what?” What choices and tradeoffs did you have to consider during Round 1?

a. Participants had to decide which factors of production they wanted to purchase. Their resources were

limited so they had to make a choice. The labor they used on land could not be spent on capital.

b. Participants may have elected to trade. If they traded for one resource, they could not trade for another

at the same time.

4. Did you try to complete the production of a complete pencil yourself, or did you work together with your team to get the pieces you needed? Why?

a. Ask the group if anyone tried to get all the factors of production themselves. Did anyone focus on

buying one factor of production and then trade for the others they need?

b. Ask the participants to share stories about how they decided what to produce and what to trade.

5. One reason we benefit so much from society is that we are all so different. We have different skills, talents, and interests between individuals in society. Because of this, everyone is better off if they specialize and trade. Through specialization, cooperation, trade, we can create greater wealth than we could hope to achieve working alone. Division of labor is an arrangement in which workers perform one step or a few specialized steps in a larger production process. Exchange and specialization lead to a system where “everybody works for everyone else” to provide things we want. In other words, exchange and specialization make the world more interconnected and harmonious. Did you trade with anyone outside of your team? Did your team specialize in any part of the production process? Why or why not?

a. In the Blue society, graphite is relatively expensive and rubber is relatively cheap. In the Orange

society, graphite is relatively cheap and rubber is relatively expensive.

b. Both societies are better off if they produce goods they can create at relatively low costs and then trade

for the goods they need that are relatively expensive for them to make themselves. Both societies

benefit through trade!

6. Incentives are factors that motivate and influence human behavior. When a change in conditions increases the cost of an activity, individuals will tend to do less of it, other things being equal. If instead the benefits increase, people will tend to do more of the activity. What were the main incentives driving your behavior in Round 1?


a. Participants want to earn the things they desire (Certificates of Service that will be used to buy prizes

for the Trading Game). They earn Certificates of Service by producing things that people in society

need (pencils).

b. Participants also want to earn admiration and respect for making society better by creating value.

7. The rules did not specify who should work to create what goods to produce the things your society wants and needs (pencils). Yet, you still produced the pencils that society needs. How did this happen? How did you know what and when to buy?

a. Market incentives such as profits and losses helped to direct resources to where they were needed.

b. In this activity, the profits include the Certificates of Service and Badges that can be earned by

individuals and the team for completing pencil components and whole pencils.

8. The “rules of the game,” or what economists call institutions, condition the incentives people face, and as a result, the choices individuals make. Basic institutions like laws and cultural customs establish the fundamental incentive structure of an economic system. A key benefit of sound economic thinking is that it enables us to better understand which institutions promote or discourage beneficial exchanges. For example, societies with an institutional environment that encourages entrepreneurship tend to see greater numbers of individuals involved in wealth creating activities.

One of the most important institutions is property rights. A property right is an individual’s freedom to use, modify, exchange, and dispose of a certain good. It also gives the owner the right to exclude non-owners from using his or her property. For example, having property rights in your car prohibits me from smashing your scarce resource for my entertainment without your permission. A system of property rights can help diverse groups of individuals effectively solve disagreements about how scarce resources should be used. It does this through clear rules according to which individuals can come to own scarce resources, and by making such ownership secure. Unnecessary conflict is introduced when property rights are not established and respected. In Round 1, your private property was respected. All of the exchanges made during Round 1 were voluntary and there was no risk of anyone arbitrarily changing the rules or confiscating your property. How did this impact your decision to create value and trade?

a. It provided incentive to create value for others and earn a profit for themselves.

b. Stable rules allowed participants to plan and make decisions. It also allowed them to learn from market

feedback and make adjustments during the activity.

9. How did participating in the market process of Round 1 build cooperation and community with your team?

a. By creating value through the market process you serve yourself by serving others well. In Round 1

we see that everyone relies on an incredibly complex network of cooperation.

b. It takes the cooperation of an astounding number of people to produce the materials needed in society

(in this case pencils!).

c. The more we are connected to people through trade, the more civil and peaceful our society becomes.

Commerce promotes good character by encouraging people to be kind, respectful, and honest in order

to build good long-term professional relationships.

d. Competition on the market is a competition to serve people well. In Round 1, you may have competed

with other producers to create a specific pencil component, but everyone was attempting to best create

value for themselves by creating value for society.

e. Free market competition encourages people to practice peaceful interaction and increases social

harmony and cooperation.


Round 1 Summary We depend on an incredibly complex network of cooperation. Each day we benefit from countless acts of

cooperation. Cooperation is an act of working together for mutual gain and has many advantages. Trade is a

type of cooperation where both parties expect to gain. This allows people to specialize and rely on the

cooperation of exchange with other people. It frees people to grow and improve their skills, increase

knowledge, and utilize the luxury of free time to engage in other meaningful activities. With more trade,

people become wealthier as well as more and more interdependent on the cooperation of others. The market

is an interpersonal, complex, network of cooperation and mutual gain. Not only can we accomplish more by

freely trading with one another, we also make available time to build our individual talents and pursue our

dreams of a meaningful life.

Faci l i tator Tip: R ea d t he fo l l o wi ng s u mma ry of th e f i rs t ro un d.


Key Concepts for Round 1 Before moving on to the next round, let’s review a few key features of the market process.

In economics, saying that value is subjective means that the value of something is based on individual tastes

and preference.

Different people desire (or like) things differently, and the same person can desire the same thing

differently at different times.

The value of a resource to an individual is determined by how well that resource can be used to satisfy

our goals and plans relative to the available alternatives. We all have our own plans for how we want

to satisfy our goals.

Trade, or voluntary exchange, is an act of freely and willingly exchanging goods or services when all parties

involved expect to gain.

Gains from trade is the value created from exchange. Trade creates wealth by directing resources from people

who value them less to people who value them more.

In an exchange, one party need not lose for the other party to gain. In other words, trade is not “zero-

sum.” People choose to trade because each believes the trade will make them better off.

Even when no new goods or services are produced, trade increases the wealth of individuals, societies,

and nations.

Through specialization and cooperation/trade, we can create greater wealth than we could hope to

achieve working in isolation.

Cooperation is the act of voluntarily working or acting together for mutual benefit. Each day we benefit from

countless acts of cooperation. Civilization and progress rely on our ability to cooperate.

Competition is a contest for some prize, resource, or advantage. Competition is everywhere. The fact that we

live in a world of scarcity means we have to choose. In a cooperative society, this gives rise to competition,

because individuals must choose between potential trading partners, and each candidate will naturally

compete to be the one chosen. It has nothing to do with being “greedy.” Even in a world without greed, or

without businesses, where everyone cared only about others, there would still be competition because limited

resources would still have competing alternative uses.

Many falsely believe that markets encourage a sort of competition that erodes our ability to cooperate. In

reality, markets are extensive networks of cooperation. Learning to cooperate essentially means you learn to

trade well with others. In an important sense, competition and cooperation are two sides of the same activity

in the market. In the market, people compete over ways to better serve others. Competition within a free

market economy is actually a competition over who can best cooperate.


R O U N D 2 ( M I X E D E C O N O M Y )

An economy characterized by central planning is called a planned economy. The allocation of resources in a

planned economy is determined by a small number of government officials. These central planners might be

autocratic dictators, elected representatives, or unelected bureaucrats. By contrast, when resource allocation

is left to the voluntary exchanges of people in the market, this is called a free market economy. In reality, most

economies in the world today involve both central planning and market activity. Some call this a mixed

economy.

Government intervention in the economy takes many forms. Government can influence economic outcomes

when it:

· Collects revenue—and discourages behavior—using taxes

· Encourages certain behaviors using subsidies

· Requires certain products or activities by mandate

· Prevents certain products and activities through prohibitions

· Attempts to control market activity through regulation

Activity Instructions 1. Now we are ready for Round 2. Hand out the Round 2 Rules for the Orange team and the Blue team. Read

the rules as a group and then begin Round 2.

Round 2 Rules:

a. You will have 10 minutes in Round 2 to create pencils.

b. The requirements to produce a finished pencil are the same as Round 1. You will combine one

each of the four pencil components (graphite, wood, aluminum, and rubber) and place them

on the Pencil Production Sheet to create a pencil.

c. Also the same as Round 1, to create each pencil component, you must combine each of the

three factors of production (land, labor and capital) according to the amounts listed in the

table on your group’s production sheet.

d. However, this round has some changes:

i. Your society desires wealth equality in hopes to promote fairness. Please count your

Certificates of Service and redistribute the wealth with others in your team until

everyone has the same amount. Note: We will also redistribute Certificates of Service

at the end of the round to ensure everyone on your team has the same amount.

ii. There is a new minimum wage law, so workers now earn a higher hourly rate, but at

the higher wage, employers are only willing to hire fewer workers or restrict working

hours. As a result, each participant will now start with 6 Labor they can use to acquire

Land, Capital, and pencil components.

iii. There are new environmental regulations that make Land a risky investment. To

acquire Land, you must flip a coin. If heads, you may acquire the land with the labor

indicated on your production sheet. If tails, you lose the labor indicated on your

production sheet, but you do not get any Land.

iv. One of the effects of inflation is that is decreases the incentive to save. At the end of

the round, half of any saved factors of production (Land, Labor, and Capital) will be

confiscated.

v. Finally, there is a protectionist tariff on all imports. The local industries in your

society did not want to compete with cheaper foreign products, so they lobbied the

government for a tariff (tax on trade) to protect them. You must now pay a tax of 2

Certificates of Service on each trade outside of your group.


e. Before the start of the round, everyone must pay a tax of 1 Certificate of Service to fund the

cost of administering these new government programs.

f. Your team goal for Round 2 is to earn a Level-2 Washing Machine Badge by creating 2

complete pencils in order to receive the team bonus for leveling up.


pencils produced. Ask one person to read the Level-2 Washing Machine Badge accomplishments to the group,

if anyone is able to reach Level 2.


Faci l i tator Tip: A bout ha l fwa y th ro ugh R ou n d 2 , th e fa c i l i ta to r s ho ul d s top th e ga m e

a nd c ol l ec t a 1 C e rt i f ic a te of Se rvic e ta x t o pa y f or a r egul a t io n to d e s ign e d to p rot ec t

na tu ra l res ou rc es a r ou nd th e l a nd w he r e w e ex tra c t o ur ra w ma t e ri a l s .

R em e mb e r to ha v e t he ind iv i dua l s o n ea c h t ea m re dis tr i bu t e the w ea l th t o a c c ou nt f or

a ny inc om e in e qua l i ty tha t r es ul t ed f ro m R ou nd 2 .


Discussion for Round 2 Let’s discuss what we’ve learned from Round 2. In this round, our simulated economy was no longer a free

market. Politics interfered by causing a change in the rules of the game. Through the political and legal process,

rules are created to tell people how they must, must not, or may use scarce resources (including their own

bodies). Politics and law both seek to influence human behavior by changing incentives. Such rules often

influence human behavior in ways that were not intended or anticipated by the rule-makers. Economic insight

can tell us why people might respond in seemingly surprising ways.

Economic policies have immediate, direct impacts on certain known groups; these consequences can be called

“the seen.” They also have less visible, but no less important, impacts for all groups, especially over the long-

term; these consequences can be called “the unseen.” All too often people focus merely on the highly-visible,

narrow, and/or short-term effects. The art of economic thinking is to give appropriate consideration to both

the short-term and specific consequences and the long-term and widespread consequences of an action or

policy. Thinking more carefully about, not just the seen, but the unseen consequences can help us make better

decisions.

Unintended consequences are results of an action—positive or negative—other than those intended by the

actor.

1. How did the incentives in Round 2 change from those we experienced in Round 1? What were the major changes from Round 1?

a. In this round, there was less incentive for individuals to create value because they knew their earnings

would be taken through taxation, redistribution, and inflation. Also, the rules were unstable and they

were not sure what to expect. Private property rights could be violated at any moment. Uncertain

“rules of the game” make it difficult to plan and make decisions. Stable rules and expectations are

essential for economic growth. In contrast to the rule of law, when rulers and lawmakers arbitrarily

interfere with economic outcomes, it discourages market participants from putting forth their

resources and effort and create value. A system of rules that is impartial and applied uniformly to

everyone is the rule of law. Round 1 was characterized by the rule of law. Round 2 was not.

2. Who was able to create value and improve the well-being of yourself and people in your society in Round 2? How did this compare to Round 1?

a. Government interventions made coordination and cooperation much more difficult. Most participants

will still be able to create some value.

3. How did you feel during Round 2? Did political interference in the market make cooperation and building community difficult?

a. Participants may feel frustrated after Round 2. It is difficult to trade and coordinate when property

rights are not respected.

b. When special interests compete over political privilege from government it introduces conflict into

society where conflict need not exist.

c. Whenever government power exists to control economic outcomes, special interest groups have

strong incentives to seek political privilege to influence outcomes for their benefit. Seeking economic

favor through government is what economists call rent seeking.

4. What happened when the cost of trade increased?

a. Taxes on trade increased the cost of trading with other teams so we saw less trade.

b. Certain local industries may benefit in the short run from protectionist tariffs (the “seen”

consequence), but only at the cost to society as a whole over the long run (the “unseen” consequence).


5. In Round 2 we saw a decrease in economic freedom as political power was used to grant special favor to special interest groups. This is similar to what happens in the Mixed Economies of most countries around the world today. How might politics and law encourage or discourage wealth creating activities?

a. In Round 2 we had several new laws. Workers lobbied for higher minimum wage. Local industry

lobbied for higher taxes on trade. Each of these policies had an unseen cost of making wealth creation

more difficult for people in society.

b. People respond to incentives in predictable ways. The “rules of the game,” or what economists call

institutions, condition the incentives people face, and as a result, the choices they make. Basic

institutions like laws and cultural customs establish the fundamental incentive structure of an

economic system. Law can encourage economic growth when it has stable rules, protects private

property, and is not corrupt and oppressive.

c. Countries where doing business is very difficult due to excessive regulations and property rights

violations discourage wealth creating activities.

d. Restrictions on trade discourage wealth creating activities. Government should not restrict economic

freedom, including the freedom to trade with people in other countries around the globe.

6. A famous saying is, “Power corrupts.” How can power corrupt the character of politicians? How can power corrupt the character of market participants?

a. Human beings are self-interested. Government officials are no less self-interested than people in the

private sector. In fact, politicians face strong perverse incentives to do things that harm the public in

order to win elections or gain power.

b. If government takes on the role of picking winners and losers in the marketplace, business people and

workers will have the perverse incentive to spend more time and resources trying to influence the

government to advantage them and disadvantage their competition, and less time and resources trying

to succeed by serving others in society. The lure of political power and influence encourages greed and

laziness in market participants, and discourages them from being public minded and from pursuing an

honest living.

Key Concepts for Round 2 Before moving on, let’s review some concepts we learned in Round 2.

Unintended consequences are results of an

action—positive or negative—other than those

intended by the actor.

The “rules of the game,” or what economists

call institutions, condition the incentives

people face, and as a result, the choices

individuals make.

A system of rules that is impartial and applied

uniformly to everyone is the rule of law.

Seeking economic favor through government is

what economists call rent-seeking.

Government officials are no less self-interested

than people in the private sector. In fact,

politicians face strong perverse incentives to do

things that are not in the best interest of the

public at large in order to win elections or gain

power.


R O U N D 3 ( E N T R E P R E N E U R S H I P )

An entrepreneur is someone who anticipates what people will want in the future, and adjusts production to

provide for those wants. Entrepreneurs who anticipate correctly earn profit for themselves as they create value

for others. Entrepreneurs are both problem solvers and wealth creators.

Entrepreneurs purchase the factors of production (land, labor, and capital) and recombine them to create

something new: a product. They do this hoping that the buying public will appreciate the new product. If sales

of the product are higher than the costs paid to produce it, the entrepreneur earns profit, which is a sign that

the entrepreneur discovered a way to improve human welfare.

But in a truly free market, profit is not guaranteed. There is always a chance that the entrepreneur anticipates

future wants incorrectly. Sales could end up being lower than costs, which means the entrepreneur would lose

money. Losses are a sign that the entrepreneur did not create value for the public, but reduced it. But losses are

an important part of the free market too. Losses teach entrepreneurs what the public doesn’t want, and drives

them on to figure out what they do want.

Since they put their own money on the line and always face the possibility of losses, entrepreneurs are also

risk-takers. Entrepreneurs take on the risks that are necessary to discover and blaze new paths toward

improvement. Entrepreneurship is an ongoing process that is essential for economic progress.

Entrepreneurship is the essential foundation for economic growth. Societies that encourage entrepreneurship

through economic freedom tend to see much faster economic growth than those that do not. Entrepreneurial

discoveries and insights build on one another to create new and better products and processes.

Activity Instructions 1. Now we are ready for Round 3. Hand out the Round 3 Rules for the Orange team and the Blue team. Read

the rules as a group and then begin Round 3.

Round 3 Rules:

a. You will have 10 minutes in Round 3 to create pencils.

b. The rule changes from Round 2 no longer apply. We are returning to the market economy like

Round 1.

c. As in Round 1, you earn 2 Certificates of Service for contributing all of one factor necessary for

a completed pencil component (graphite, wood, aluminum, or rubber) your team places on

the Pencil Production Sheet. Partial contributions of a factor earn 1 Certificate of Service.

d. To create each pencil component, you must combine each of the three factors of production

(land, labor and capital) according to the amounts listed in the table on your group’s

production sheet.

e. Entrepreneurs in your society have discovered opportunities to make certain pencil

components with fewer inputs. The Orange teams can now make graphite with 1 Labor, 1

Land, and 1 Capital, and they can make aluminum with 1 Labor, 1 Capital, and 1 Land. The Blue

teams can now make erasers with 1 Labor, 1 Capital, and 1 Land, and they can make wood

with 1 Labor, 1 Capital, and 1 Land. Teams may trade pencil components.

f. To produce a finished pencil your team must combine one each of the four pencil components

(graphite, wood, aluminum, and rubber) and place them on the Pencil Production Sheet.

g. Your team goal for Round 3 is to earn a Level-3 Modern Economy Badge by completing a grand

total of 6 complete pencils over the course of the 3 rounds of this activity to receive the team

bonus.



pencils produced. Ask one person to read the Level-2 Washing Machine Badge (if not read in Round 2) and ask

one person to read the Level-3 Modern Economy Badge to the group.


Discussion for Round 3 Let’s discuss what we’ve learned from Round 3:

1. Who was able to create value and improve the well-being of yourself and people in your society? How did Round 3 compare to Rounds 1 and 2?

a. In Round 3 we removed the policies that make doing business difficult. We also introduced

entrepreneurial innovations that increased economic growth. We were able to create more value in

Round 3 than Round 1 or Round 2.

2. Can you imagine what types of innovations or new processes that entrepreneurs may have created in order to make wood and aluminum production more profitable in Round 3?

a. Entrepreneurship is about discovering an opportunity and innovating new solutions to solve

problems. Perhaps entrepreneurs found a better way to mine aluminum or developed better

equipment to cut lumber. Maybe they developed better ways to transport materials and reduced

shipping costs. There are endless opportunities to discover new ways of using resources to meet a

need.

3. What is the relationship between economic freedom and entrepreneurship?

a. There is a direct relationship between freedom and entrepreneurship. Greater economic freedom

tends to promote more entrepreneurship. Entrepreneurs require economic freedom to create value

for themselves and for society.

b. According to the Economic Freedom of the World Index: “The link between freedom and prosperity is

undeniable. The most economically free countries offer the highest quality of life and personal

http://www.freetheworld.com/release.html


freedoms while the lowest ranked countries, are usually burdened by oppressive regimes that limit

the freedom and opportunity of their citizens.”

4. Do you think entrepreneurs are modern day heroes?

a. Entrepreneurs play a key role in value creation. They undertake risk in order to create value for

themselves and for others.

b. A society that embraces entrepreneurship creates more jobs, produces more wealth, and allows

individuals to exercise their creative talents.

c. Successful entrepreneurs have traits commonly associated with heroes including: Courage, Bravery,

Strong Leadership, Vision, Wisdom, Honesty, Persistence in the face of challenge, and Alertness to

need.

5. Now that we have completed 3 rounds, how many people are better off than they were at the start of the activity?

a. Everyone should be proud they were able to create value and raise the living standards for their

communities. They should have also earned Certificates of Service that will be used in the Trading

Game. Participants should be proud they were able to create value and raise the living standards for

their communities. They should have also earned Certificates of Service that will be used in the Trading

Game.

6. A popular slogan among critics of the market is, “People over profits!” This implies that there is a conflict between serving people and earning profit. Is this idea mistaken? How so?

a. Profits are a sign that entrepreneurs have served people well. Profits result from sales being higher

than costs. And this means that the entrepreneur increased society’s wealth by taking lower-value

resources and recombining them into higher-value products.

7. Entrepreneurship involves noticing and seizing opportunities, perceiving what others want and value, taking calculated risks, and innovating improvements. What are some ways you can be entrepreneurial in your daily life?

a. Look for good deals as a consumer

b. Buy really considerate birthday gifts for friends and loved ones

c. Try something outside of your comfort zone, like performing in a talent show

d. Find and download a new app that will help you be more organized and productive

e. Identify a need where you can provide a service or create value for people in your community


Key Concepts for Round 3 Before concluding this activity, let’s review what we have learned in Round 3.

Entrepreneurship is:

· Serving yourself by serving others well

· Creating wealth by making higher-value products out of lower-value factors of production.

· Innovating new products or processes to replace old ones

· Discovering unnoticed opportunities to profit and acting on those opportunities

An entrepreneur is someone who anticipates the future wants of his fellow human beings, and reorganizes

production to provide for those wants. Entrepreneurs who anticipate correctly earn profit for themselves as

they create value for others. Entrepreneurs are both problem solvers and wealth creators.

Entrepreneurs who do not anticipate correctly suffer losses and learn from them. Since entrepreneurs face

the possibility of losing their own resources, they are risk-takers.

Entrepreneurs discover and blaze new paths toward improvement. Entrepreneurship is an ongoing process

that is essential for economic progress. There is a direct relationship between freedom and entrepreneurship.

Greater economic freedom tends to promote more entrepreneurship.

If we want economic progress, we should encourage more entrepreneurship by celebrating entrepreneurs

and promoting economic freedom.

Today you have all played the role of an entrepreneur.


Activity Recap

Each day we benefit from countless acts of cooperation. Free markets encourage cooperation,

which leads to social progress and prosperity in a civil society

The “rules of the game,” or what economists call institutions, influence the incentives people face,

and as a result, the choices individuals make. Basic institutions like laws and cultural customs

establish the foundational incentive structure of an economic system.

Private property makes economic planning possible. Lack of enforced property rights discourage

people from being innovative or producing more since they have no incentive to keep what they

earn.

Government officials are no less self-interested than people in the private sector. Politicians face

perverse incentives to do things that are not in the best interest of their constituents or the public

at large in order to win elections or gain power.

Whenever government power exists to control economic outcomes, special interest groups have

strong incentives to seek political privilege to influence outcomes for their benefit. Seeking

economic favor through government is what economists call rent-seeking.

Political decision-making often results in outcomes that conflict with the preferences of the

general public.

All too often people focus merely on the highly-visible, short-term effects of economic policies. The

art of economic thinking is to give appropriate consideration to both the short-term specific

consequences and the long-term pervasive consequences of an action or policy. Thinking more

carefully about, not just the seen, but the unseen consequences can help us make better decisions.

An entrepreneur is someone who discovers and provides for an unmet need by producing value

for others in the community and for themselves.

Entrepreneurship is the essential foundation for economic growth. Societies that encourage

entrepreneurship through economic freedom tend to see much faster economic growth than those

that do not.


ACTIVIT Y 3 – THE TRADING GAME

Description Through the Trading Game you will experience firsthand the power of markets. The Trading Game is one of the

most engaging and memorable activities used to learn about gains from trade. Voluntary exchanges occur when

each person involved believes he or she will be better off. Wealth, as measured by satisfaction levels in this

activity, is created through the magic of trade – even when no new items are produced!


Required Materials A few small, inexpensive items for each participant use in the Trading Game. A variety of items such as

toys, candy, stickers, and school supplies works well. The more variety the better! Note: Some

facilitators have also had success asking participants to bring in a few small items they are willing to

trade. Inexpensive items can be purchased from Oriental Trading.

Brown paper lunch bags (one per participant).

Trading Game Spreadsheet, or tally sheets to count and display results [example below].

Stopwatch or way to keep time.

Required Pre-Activity Preparation 1. Divide the total lunch bags (one for each participant) into four equal groups. Assign each group of bags

a color, and mark the bags in the group with the group color (red, green, blue, yellow).

2. Place items for trade in each of the brown paper bags. Introduce variety by placing different items and

varying quantities in each bag. The game seems to work well if you concentrate item types by color as

well. For example, the red team might have most of the bouncy balls and the green team might have

most of the finger traps to simulate comparative advantage.

3. Prepare a score sheet on the board, or prepare the Trading Game Spreadsheet to tally and display

results.

4. Place bags of like color in each of the four corners of the room.

Activity Instructions 1. To begin the Trading Game, divide the participants into four equal groups by color and ask the

participants to select one bag from their assigned color. Tell your participants not to look into the bag.

2. Read the following rules of the Trading Game to your participants:

a. The Trading Game will have four rounds, each with different rules. I will explain the rules

before each round. Things might get loud and hectic, so I need everyone to pay attention to

my instructions.

b. At the end of each round we are going to rate your individual satisfaction on a scale of 1 to 5.

A score of 1 means you are very unsatisfied and a score of 5 indicates you are very happy with

the contents of your bag.

Faci l i tator Tip: B e s ur e to c om pl e t e t he p r e - a c t iv i ty pr e pa ra t io n f or t he T ra di ng G a m e

pri o r t o b eg in ni ng wo r k s hop.

http://www.orientaltrading.com/toys-games-and-novelties-a1-550202.fltr

https://www.dropbox.com/sh/ixzhbpn6tot97l4/AAASsyVoMYykIcoL9rU3IExwa?dl=0


2. Play the Trading Game in four rounds using the instruction below:

Round 1 – No Trade

a. Explain the rules of Round 1 to your participants:

1. In Round 1, you have 2 minutes to open your bag to review the contents. Do not remove the

items from the bag and do not let anyone else see what you have you bag.

2. The items in your bag now belong to you. It is your property.

b. At the end of 2 minutes, ask participants to rate their satisfaction level on a scale of 1 – 5, and record

the number of participants at each individual satisfaction level. Place the totals on the board or in

Trading Game spreadsheet.

c. Calculate the total satisfaction level by adding the products of the level of satisfaction and the number

of participants (example below), and briefly share the results for Round 1 with the group.

Round 2 – Limited Trade


1. In Round 2, you have 5 minutes to trade with anyone in your group (e.g. a member of the

Green group can only trade with other members of the Green group). All trades are voluntary.

Only make trades if you want to. You do not have to trade if you are satisfied with the contents

of your bag.


the number of participants at each individual satisfaction level and place the totals on the board or in

the Trading Game Spreadsheet.

c. Calculate the total satisfaction level, and briefly share the results for Round 2 with the group.

Round 3 – Expanding Trade


1. In Round 3, you have 5 minutes to trade with anyone on your half of the room. Members of

the Green and Red groups can now trade with each other. Members of the Blue and Yellow

groups can now trade with each other.





Round 4 – Free Trade


1. You have 5 minutes to trade with anyone in the room. Free trade!





Discussion Questions for the Trading Game Compile the results from the four rounds and plot the results on a graph for the group. Discuss the results:

1. Why do people trade?


a. People trade when they expect the value of what they are getting from the trade to be higher than the

value of what they are giving up. The upward sloping graph can be described as gains from trade. Trade

is not a “zero-sum” game. When someone trades voluntarily and is made better off, it does not mean

that someone else has been made worse off. Trade is a “positive-sum” game. Both parties win.

b. As the size of the trading pool increases and restrictions on trade decrease, we are able to realize

greater gains from trade. The more people there are with which we are able to trade, the greater the

opportunity for prosperity.

2. Does anyone have a success story they would like to share? (Facilitator Tip: You may try to touch on the points below as participants share their stories.)

a. The value of each item is determined by the priority an individual gives it. This is what economists call

subjective value.

b. We learn that people value things differently. They can value the same items very differently, and

individual preferences for an item may change over time. Sometimes we even see satisfaction levels

decrease between Rounds 1 and 2 when participants learn what kinds of items other people have.

c. Sometimes people will trade for something they don’t want for themselves. They just hope someone

else will give them something they do want in exchange for it. This is called indirect exchange, and it is

how money arises in the market.

d. We observe that the more choices and freedom to trade people have, the easier it is for them to increase

their satisfaction in the marketplace. They increase their satisfaction while increasing the satisfaction

of their trading partner at the same time.

3. Besides people having different preferences, what other conditions do you think must be present for trade to flourish?

a. Scarcity. We only trade scarce items. We don’t trade non-scarce resources like the air in the room. If

we were playing the Trading Game while scuba diving, then air might be a very valuable scarce

resource!

b. People cannot trade what they do not own. Ownership of property is a precondition for trade. How

would different incentives have changed your behavior? For example, if I said at the beginning that you

don’t get to keep the contents of your bag, would you have tried as hard to trade for the things you

wanted? What if we had placed taxes on all trades and you had to give up half of your gains from trade?


4. How is this game different from the real world?

a. There was no production in the Trading Game. The amount of goods available for trade did not

increase. Even with a static amount of “stuff,” we were still able to witness significant gains from trade.

b. There was no time for significant innovation. We did not have time for entrepreneurs to discover new

processes or identify new ways to serve people. We did see people thinking with an entrepreneurial

mindset as they found creative ways to trade.

c. We had to rely on barter (the direct exchange of goods for other goods without using money).

5. What are the main challenges or obstacles that might make trade difficult?

a. We don’t have access to perfect information. It could be very difficult and time consuming for us to get

the needed information.

b. Transportation costs due to geographic factors could result in high costs associated with trade.

c. Political barriers increase the cost of trade. Taxes, price controls, regulations, and trade quotas make

trade more expensive.

6. Do you think trade does more to create cooperation or conflict between people?

a. Trade encourages cooperation between people. Humans seem to intuitively understand the fact that

trade makes us better off. We thrive when we build strong economic and social relationships that

leverage the specialized abilities of our friends, family, communities, and other people in the

marketplace. Some scholars even suggest that the emergence of “feelings of sympathy and friendship”

are rooted in our understanding that we are better off with economic cooperation.


Sample Trading Game Tally Sheet Round 1

Satisfaction Level # of Participants Total Satisfaction

1

2

3

4

5

Total:

Round 2


1

2

3

4

5

Total:

Round 3


1

2

3

4

5

Total:


Round 4


1

2

3

4

5

Total:

Example chart from the Trading Game Spreadsheet showing gain from trade:


Lesson Recap

Trade, or voluntary exchange, is an act of freely and willingly exchanging goods or services.

Even when no new goods or services are produced, the act of trading can create wealth. This is

called gains from trade.

Trade, or voluntary exchange, happens when all parties involved expect to gain.

Trade directs resources from people who value them less to people who value them more.

Trade increases the wealth of individuals, communities, and nations.

Policies and institutions that restrict trade make individuals and societies relatively poorer.


CLOSING DISCUSSION


Discussion Questions

1. Today did you learn anything new you thought was particularly interesting? Would anyone like to share an “Ah-Ha!” moment?

2. How can you use what you learned today to create value for yourself and your community?

3. What can you do to make the world a better place?

Optional Videos Some facilitators may choose to show these brief videos to the group.

VIDEO: Most of the World is Better Off than You Think (Channel 4 News, 2:34min)

VIDEO: Economic Freedom & Quality of Life (EconFree, 2:26 min)

Faci l i tator Tip: A s k the qu es t io ns b el o w to be gin ou r c l os i ng dis c us s ion .

http://courses.fee.org/courses/take/economics-in-one-day-companion-guide/lessons/217602-most-of-the-world-is-better-off-than-you-think

https://www.youtube.com/watch?v=PwHvizPqpWI



C O N C L U D I N G E C O N O M I C S I N O N E D A Y

Remember, the big question of the workshop is whether the free market or central economic planning helps us

achieve our shared values. Let’s revisit the list we made at the beginning. Based on what you learned today,

how does the free market measure up in helping us achieve our common goals? How about central planning?

Let’s consider the shorter list of shared values, and their opposites:

Order vs. Chaos The challenges of production for the needs of millions of individuals are so complicated that a central planner

could never have enough knowledge to handle them all. A centrally planned economy is chaotic because there

is no way of knowing whether any particular plan actually improves human well-being.

In the free market, the challenges of production are spread out among millions, even billions of people who

each plan on a manageable scale.

In a free society (or market economy), workers are free to plan their own careers. They are free to pursue their

specialized role in the division of labor, according to what suits them. Think of all the specialized roles in the “I,

Pencil” story. Workers sign up for roles in projects planned and funded by entrepreneurs, who also specialize

on a few manageable roles.

Each entrepreneur knows whether a new plan improved customer satisfaction based on whether it made a

profit or loss. By chasing profits and avoiding losses, entrepreneurs make constant tiny improvements to how

goods and services are being produced.

The beauty of a free market economy is that everyone is free to plan for their own lives and property, and

everyone is encouraged by market incentives to coordinate their plans with the plans of everybody else. This

coordination arises out of the free choices of millions of individuals without a mastermind or a central plan.

Harmony vs. Conflict How should people spend their days, in terms of both work and leisure? How should scarce resources—the

material wealth of society—be used, and for whose benefit? If these decisions are to be made by the

government, then everyone will have the incentive to influence the government to decide according to their

own benefit, even if it is to the detriment of others. This will make individuals in society preoccupied in political

battles with each other. Central planning encourages conflict.

However, in the free market, things are not “up for grabs” in the political arena. Every individual is secure in

his/her person and property. So, instead of engaging in unnecessary political conflict in which there are

winners and losers, people are motivated to engage in voluntary exchange, in which both sides are winners.

Furthermore, the free market creates economic interdependence among the people of the world. This

encourages peace, because it doesn’t make good business sense to wage war on your trading partners.

However, when central planners create trade barriers, the only way to profit from other nations is to seize their

resources. The free market encourages peace and harmony, while central planning encourages conflict and

war.

Optional Video Some facilitators may choose to show these brief videos to the group.

VIDEO: I, Pencil Extended Commentary: Connectivity (CEI, 3:26 min) [http://at.fee.org/1XnWfmh]

Cooperation vs. Isolation Governments often try to centrally plan economic outcomes by restricting voluntary exchanges. Examples of

this include minimum wages, trade barriers, and sales prohibitions. By outlawing certain forms of cooperation,

central planning imposes greater isolation on people.



Some believe it is good to centrally plan help for people in need and security for people at risk through large

government programs. Examples of this in America include welfare, social security, and government health

care. Centrally planned programs like these can impact the bonds of civil society? Individuals are less likely to

support private charities and other organizations if they think that the government has it covered with tax-

funded programs. In this way, government programs “crowd out” civil society.

The free market is often accused of encouraging selfishness, but it actually encourages cooperation. It makes

serving others the most effective way to serve oneself. And the market makes it possible for millions of

strangers to cooperate in the production of a single product.

Optional Video Some facilitators may choose to show these brief videos to the group.

VIDEO: What’s So Great about Economic Freedom? (Learn Liberty, 4:25 min)

[http://at.fee.org/24TVUNR]

Prosperity vs. Poverty Economic chaos, isolation, conflict, and war all hamper production. So central planning leads to poverty and

suffering.

Economic order, harmony, and cooperation all boost production. So the free market leads to prosperity and

happiness.

Only the free market can coordinate the economic activity of billions of strangers. And only economic

cooperation on that scale is productive enough to provide the kind of living standards we enjoy today.

Economic freedom is also essential for good character, including humane values like integrity, responsibility,

benevolence, and charity. Virtuous behavior is about making good choices. Without the freedom to choose,

there is little room for virtue. Just like a muscle, one cannot develop moral judgment without the freedom to

exercise it.

One of the best ways to make the world a better, more thriving place, is to support economic freedom and the

free market.

Faci l i tator Tip: I f t i m e a l l ows , a s k th e a u di e nc e wh et he r th e fr e e ma rk et o r c en tra l

p l a n ni ng p rom ot es th e oth e r i t ems o n th e l i s t o f s ha r e d va l u es .

https://www.youtube.com/watch?v=6yqA6-ukmfg


W HAT ’S NEXT? Thank you for participating in Economics in One Day! Take the next step on your journey to discover the power

of economic thinking! Here are three things you can do right now.

1. Check out FEE’s Economics in One Day Online Course. This handy reference can be used to refresh the

ideas discussed today or dig a little deeper into the concepts you find most interesting.

[http://at.fee.org/1OqydzE]

2. Experience the power of ideas at a FEE Seminar. Each year, FEE hosts student programs around the

country where participants can engage with life-changing presentations and discussions with

professors and business leaders. Visit FEE.org/seminars to see a schedule of upcoming programs.

3. For more in depth study, please visit FEE’s complete 40-lesson course on the Economics of

Entrepreneurship at FEE.org/Courses.

We would love to hear about your workshop experience. Please email [email protected] with any questions or

comments about Economics in One Day. This work is licensed under a Creative Commons Attribution 4.0

International License, except for material where copyright is reserved by a party other than FEE.


http://fee.org/events/?filter=seminars

http://fee.org/resources/economics-of-entrepreneurship-course/



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