D2.Eco.14.9-12: Comparative Advantage in International Trade of Goods and Services

Overview

Lesson Procedure

70-80 minutes of class time across 5 phases.

1. Warm-Up5-10 minutes
2. Direct Instruction20 minutes
3. Guided Practice15-20 minutes
4. Independent Practice20 minutes
5. Closure10 minutes

1. Warm-Up5-10 minutes

   Warm-Up Prompt

   "A hospital's best heart surgeon is also the fastest person in the building at typing patient notes. Should she type all of her own notes? What does the hospital give up for every hour she spends typing?"

   Let students argue briefly. Draw out the key idea: being faster at typing (an absolute advantage) is not the question; the question is what each hour costs. An hour of the surgeon's typing costs an hour of surgery, while an hour of an assistant's typing costs much less. Tell students that the same reasoning, applied to whole countries, is called comparative advantage, and that in 1817 the economist David Ricardo used it to explain why countries trade even when one country is better at making everything.

2. Direct Instruction20 minutes

   Key terms for D2.Eco.14.9-12 (working definitions)

   Term	Meaning	How to find or use it
   Opportunity cost	What must be given up to make one more unit of something	Divide what is given up by what is gained, using the same workers or the same hours
   Absolute advantage	Producing more of a good with the same resources (or the same amount with fewer)	Compare output per worker, or labor needed per unit, directly
   Comparative advantage	Producing a good at a lower opportunity cost than another producer	Compare opportunity costs; each country has a comparative advantage in something unless their costs are identical
   Specialization	Putting more resources into the good with the lower opportunity cost	Countries specialize, then trade for the rest
   Terms of trade	How many units of one good trade for one unit of the other	Both countries gain if the price lies between their two opportunity costs
   Trade in services	Selling work that is not a physical product across borders: software, finance, design, tourism, education	Measured by the Bureau of Economic Analysis (BEA) alongside trade in goods

   Part 1: Two ways data can be given. Problems give either output per worker (how much one worker makes) or labor per unit (how many workers or hours one unit takes), as Ricardo does. The rule for opportunity cost is the same in both: what you give up divided by what you get. With output data, the opportunity cost of good A is (output of B) / (output of A). With labor data, it is (labor for A) / (labor for B). Mixing up the two framings flips every answer, so have students write the framing at the top of each problem.

   • Ricardo's numbers: opportunity cost (labor per unit)

     Source 1: in England, a year's output of cloth takes 100 men and the same amount of wine takes 120 men. In Portugal, the wine takes 80 men and the cloth takes 90. Who has the absolute advantage, and who has the comparative advantage in cloth?

     Result: Portugal needs fewer men for both, so it has the absolute advantage in both. Opportunity cost of the cloth: England 100 / 120 = 5/6 (about 0.83) units of wine; Portugal 90 / 80 = 1.125 units of wine. England gives up less wine, so England has the comparative advantage in cloth, and Portugal in wine.

   • Gains from specializing

     England has 220 men (100 + 120) and Portugal 170 (90 + 80). Without trade, each makes one unit of cloth and one of wine. What happens to total output if England makes only cloth and Portugal only wine?

     Result: England: 220 / 100 = 2.2 units of cloth. Portugal: 170 / 80 = 2.125 units of wine. Total goes from 2 cloth and 2 wine to 2.2 cloth and 2.125 wine: 0.2 more cloth and 0.125 more wine with the same workers.

   • Goods and services (output per worker, invented data)

     In a month, one worker in Quillan can make 30 rugs or write 6 data-analysis reports for foreign clients. One worker in Brennick can make 20 rugs or 2 reports. Find each country's opportunity cost of a report and its comparative advantage.

     Result: Quillan: 30 / 6 = 5 rugs per report. Brennick: 20 / 2 = 10 rugs per report. Quillan has the comparative advantage in reports (a service) and Brennick in rugs (a good: 2 / 20 = 0.1 report per rug against Quillan's 6 / 30 = 0.2), even though Quillan has the absolute advantage in both.

   • Terms of trade

     Quillan and Brennick agree to trade one report for 7 rugs. Does each country gain?

     Result: 7 lies between 5 and 10. Quillan gets 7 rugs for a report that costs it 5 rugs to make: a gain of 2 rugs per report. Brennick gets a report for 7 rugs instead of the 10 it would give up making one: a gain of 3 rugs per report.

   • U.S. trade in goods and services (real data)

     Use the 2025 BEA table below. Find the U.S. balance (exports minus imports) on all services and on goods.

     Result: Services: 1,237.9 - 910.2 = +327.7 billion dollars (a surplus). Goods: 2,191.9 - 3,451.5 = -1,259.6 billion dollars (a deficit). The country sells more services abroad than it buys, and buys far more goods than it sells.

   U.S. international trade in services by type, and in goods, 2025, billions of dollars (real data: U.S. Bureau of Economic Analysis and U.S. Census Bureau, U.S. International Trade in Goods and Services, annual tables 1-3, last updated September 3, 2026; rounded from millions)

   Category	U.S. exports	U.S. imports
   Maintenance and repair	42.4	8.9
   Transport (freight and passenger fares)	101.6	123.8
   Travel (spending by business and personal travelers, including students and patients)	214.1	193.0
   Insurance	34.2	136.5
   Financial services	214.0	72.1
   Charges for the use of intellectual property (patents, software and film licenses, franchise fees)	195.3	61.4
   Telecommunications, computer and information services	101.7	82.1
   Other business services (consulting, engineering, research, advertising and more)	284.1	177.2
   Personal, cultural and recreational services	21.6	27.1
   All services (includes two small categories not shown: construction, and government goods and services)	1,237.9	910.2
   Goods (balance of payments basis)	2,191.9	3,451.5

   Part 2: What trade data can and cannot show. A comparative advantage is about opportunity costs, which no trade table reports directly. A pattern of large exports and smaller imports in one category is consistent with a comparative advantage there, but it is not proof. The overall balance of a country's trade also reflects how much it saves and invests, and a single category can be shaped by other things, such as where companies choose to own their patents or how many students and tourists visit. Teach students to say "the data are consistent with" rather than "the data prove."

   Part 3: Two views. Ricardo (Source 1) argues that free trade lets each country put its labor where it is relatively most productive, so total output rises. Friedrich List (Source 2), writing in 1841, challenges the free-trade view; students read his argument in his own words in Independent Practice and judge how strong it is. Students should be able to state both views in their strongest form.

3. Guided Practice15-20 minutes

   Reading Ricardo. Context note: David Ricardo was a British economist; this book was published in London in 1817. In this chapter he sets out to show why trade can benefit every country involved. Words to know: commerce is trade; capital here means money and equipment invested in production; connexion is an old spelling of connection; Englishmen and Portuguese stand for the workers of each country. Teacher note: Ricardo's phrase "the civilized world" reflects how many Europeans of his time ranked other societies; point it out as dated, Eurocentric language and discuss it as part of the source's historical context.

   1Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employments as are most beneficial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole. By stimulating industry, by rewarding ingenuity, and by using most efficaciously the peculiar powers bestowed by nature, it distributes labour most effectively and most economically: while, by increasing the general mass of productions, it diffuses general benefit, and binds together by one common tie of interest and intercourse, the universal society of nations throughout the civilized world. It is this principle which determines that wine shall be made in France and Portugal, that corn shall be grown in America and Poland, and that hardware and other goods shall be manufactured in England.

   [...]

   2If Portugal had no commercial connexion with other countries, instead of employing a great part of her capital and industry in the production of wines, with which she purchases for her own use the cloth and hardware of other countries, she would be obliged to devote a part of that capital to the manufacture of those commodities, which she would thus obtain probably inferior in quality as well as quantity.

   3The quantity of wine which she shall give in exchange for the cloth of England, is not determined by the respective quantities of labour devoted to the production of each, as it would be, if both commodities were manufactured in England, or both in Portugal.

   4England may be so circumstanced, that to produce the cloth may require the labour of 100 men for one year; and if she attempted to make the wine, it might require the labour of 120 men for the same time. England would therefore find it her interest to import wine, and to purchase it by the exportation of cloth.

   5To produce the wine in Portugal, might require only the labour of eighty men for one year, and to produce the cloth in the same country, might require the labour of ninety men for the same time. It would therefore be advantageous for her to export wine in exchange for cloth. This exchange might even take place, notwithstanding that the commodity imported by Portugal could be produced there with less labour than in England. Though she could make the cloth with the labour of ninety men, she would import it from a country where it required the labour of 100 men to produce it, because it would be advantageous to her rather to employ her capital in the production of wine, for which she would obtain more cloth from England, than she could produce by diverting a portion of her capital from the cultivation of vines to the manufacture of cloth.

   6Thus, England would give the produce of the labour of 100 men for the produce of the labour of 80. Such an exchange could not take place between the individuals of the same country. The labour of 100 Englishmen cannot be given for that of 80 Englishmen, but the produce of the labour of 100 Englishmen may be given for the produce of the labour of 80 Portuguese, 60 Russians, or 120 East Indians. The difference in this respect, between a single country and many, is easily accounted for, by considering the difficulty with which capital moves from one country to another, to seek a more profitable employment, and the activity with which it invariably passes from one province to another in the same country.

   1. The claim. Prompt: in paragraph 1, what does Ricardo say happens "under a system of perfectly free commerce"? Teacher note: each country "naturally devotes its capital and labour to such employments as are most beneficial to each," and this individual advantage is "connected with the universal good of the whole."
   2. England's choice. Prompt: in paragraph 4, what does Ricardo conclude England should import, and how will it pay? Teacher note: wine, paid for by exporting cloth. Connect to Example 1.
   3. The surprise. Prompt: paragraph 5 makes a claim that surprises many readers. What is it? Teacher note: Portugal would import cloth even though it could make cloth with less labour than England. Ask students to explain why in their own words before reading the rest of the paragraph aloud; return to it in the quiz.
   4. Check with numbers. Prompt: compute Portugal's opportunity cost of wine in units of cloth. Teacher note: 80 / 90 = 8/9, about 0.89 units of cloth, which is less than England's cost of wine. Students find England's cost of wine on their own.
4. Independent Practice20 minutes

   A different view. Context note: Friedrich List was a German economist whose National System of Political Economy was first published, in German, in 1841; this is an English translation. "Say" is the economist J. B. Say, whom List argues against throughout this chapter. Words to know: values of exchange are market prices of goods; productive powers are the skills, institutions and industries that let a nation produce; protective duties are tariffs meant to shelter home producers; the prevailing economical school is List's name for the free-trade economists of his day.

   1The prosperity of a nation is not, as Say believes, greater in the proportion in which it has amassed more wealth (i.e. values of exchange), but in the proportion in which it has more developed its powers of production. Although laws and public institutions do not produce immediate values, they nevertheless produce productive powers, and Say is mistaken if he maintains that nations have been enabled to become wealthy under all forms of government, and that by means of laws no wealth can be created. The foreign trade of a nation must not be estimated in the way in which individual merchants judge it, solely and only according to the theory of values (i.e. by regarding merely the gain at any particular moment of some material advantage); the nation is bound to keep steadily in view all these conditions on which its present and future existence, prosperity, and power depend.

   2The nation must sacrifice and give up a measure of material property in order to gain culture, skill, and powers of united production; it must sacrifice some present advantages in order to insure to itself future ones. If, therefore, a manufacturing power developed in all its branches forms a fundamental condition of all higher advances in civilisation, material prosperity, and political power in every nation (a fact which, we think, we have proved from history); if it be true (as we believe we can prove) that in the present conditions of the world a new unprotected manufacturing power cannot possibly be raised up under free competition with a power which has long since grown in strength and is protected on its own territory; how can anyone possibly undertake to prove by arguments only based on the mere theory of values, that a nation ought to buy its goods like individual merchants, at places where they are to be had the cheapest—that we act foolishly if we manufacture anything at all which can be got cheaper from abroad—that we ought to place the industry of the nation at the mercy of the self-interest of individuals—that protective duties constitute monopolies, which are granted to the individual home manufacturers at the expense of the nation? It is true that protective duties at first increase the price of manufactured goods; but it is just as true, and moreover acknowledged by the prevailing economical school, that in the course of time, by the nation being enabled to build up a completely developed manufacturing power of its own, those goods are produced more cheaply at home than the price at which they can be imported from foreign parts. If, therefore, a sacrifice of value is caused by protective duties, it is made good by the gain of a power of production, which not only secures to the nation an infinitely greater amount of material goods, but also industrial independence in case of war. Through industrial independence and the internal prosperity derived from it the nation obtains the means for successfully carrying on foreign trade and for extending its mercantile marine; it increases its civilisation, perfects its institutions internally, and strengthens its external power. [...]

   Comparison organizer (complete individually, then compare with a partner):

   1. Make a two-column chart, Ricardo and List. For each author, write: (a) what he says a nation should aim for, (b) how he judges whether trade is good for a nation, (c) the time frame he cares about most (now or the future).
   2. Find one sentence in Source 2 where List admits a cost of his own policy. Copy it and explain it in your own words.
   3. Ricardo's example uses fixed labor costs. Which of List's ideas suggests those costs can change over time? Explain how that would change the comparative advantage in Example 3 if Brennick trained many data analysts.
   4. Write two sentences: one that Ricardo might say to List, and List's reply.
5. Closure10 minutes

   Exit ticket: "In two or three sentences: explain why a country with an absolute advantage in everything can still gain from trade, and give one reason the 2025 services data are consistent with, but do not prove, a U.S. comparative advantage in some services." Use the cards to plan which students need more practice with the two framings (output per worker and labor per unit).

   Teacher note: both sources use British spelling and nineteenth-century wording ("labour," "civilisation," "connexion"), which is kept exactly as printed. List writes about national power and war; present this as his historical argument, and remind students that the rubric scores the reasoning, not which economist they agree with.

Differentiation Strategies

Assessment Guidance

1. Question 1 of 20 · Multiple Choice

   Which statement defines comparative advantage?

   AMaking more of a good per worker than another country BMaking a good at a lower opportunity cost than another country CUsing more machines per worker than other countries do DSelling a good at a lower price because of tariffs

2. Question 2 of 20 · Multiple Choice

   In a week, one worker in Doravia can make 30 solar panels or translate 120 pages for foreign clients. One worker in Ambrin can make 10 solar panels or translate 80 pages (invented data). What is Doravia's opportunity cost of one solar panel?

   A0.25 pages B8 pages C4 pages D90 pages

3. Question 3 of 20 · Multiple Choice

   Use the Doravia and Ambrin data in question 2. Which country has the comparative advantage in translation services, and why?

   ADoravia, because it translates more pages per worker BNeither, because Doravia is better at both CBoth, because each country can translate DAmbrin, because a page costs it fewer panels

4. Question 4 of 20 · Multiple Choice

   Use the Doravia and Ambrin data in question 2. The two countries trade panels for translated pages. Which price for one solar panel, in pages, would benefit both countries?

   A3 pages B9 pages C6 pages D12 pages

5. Question 5 of 20 · Multiple Choice

   Using Ricardo's numbers (Source 1, paragraphs 4 and 5), what is England's opportunity cost of one unit of wine, measured in cloth?

   A1.2 units of cloth B0.83 units of cloth C0.89 units of cloth D1.125 units of cloth

6. Question 6 of 20 · Multiple Choice

   According to Source 1, paragraph 5, why would Portugal import cloth even though it could make cloth with less labour than England?

   ABecause English cloth was of much better quality BBecause England would not buy Portuguese wine otherwise CBecause Portugal had no workers who could make cloth DBecause putting its capital into wine gets it more cloth

7. Question 7 of 20 · Multiple Choice

   In Source 1, paragraph 6, Ricardo says the produce of 100 Englishmen may be traded for that of 80 Portuguese, though not for that of 80 Englishmen. What reason does he give?

   AEnglish workers were paid higher wages than Portuguese BWine was worth more than cloth in every market CCapital moves easily within a country but not between countries DLaws forbade trade between people in the same country

8. Question 8 of 20 · Multiple Choice

   According to Source 1, paragraph 2, what would Portugal have to do if it had no commercial connexion with other countries?

   AMake its own cloth and hardware, probably worse and less BStop making wine and grow only corn for its people CBuy its cloth and hardware from America and Poland DMove its capital and its workers over to England

9. Question 9 of 20 · Multiple Choice

   In Source 2, paragraph 1, what does List say a nation's prosperity depends on?

   AHow much exchange value it has amassed BHow cheaply its merchants can buy goods CHow large its foreign trade is each year DHow far it has developed its powers of production

10. Question 10 of 20 · Multiple Choice

    According to Source 2, paragraph 2, what happens to the price of manufactured goods under protective duties?

    AIt falls at once and then stays low for good BIt rises at first, then home goods get cheaper than imports CIt rises at first and stays high for as long as the duties last DIt stays the same, because foreign merchants pay the whole duty

11. Question 11 of 20 · Multiple Choice

    Which statement best describes how List's argument challenges Ricardo's?

    AList denies that countries differ in the labour needed to make goods BList argues that all trade between nations should be stopped CList argues a nation can build an advantage it lacks, at a cost now DList argues that wine and cloth should both be made in England

12. Question 12 of 20 · Multiple Choice

    Use the 2025 BEA table. In which category did the United States have its largest surplus (exports minus imports)?

    AOther business services BCharges for the use of intellectual property CMaintenance and repair DFinancial services

13. Question 13 of 20 · Multiple Choice

    Use the 2025 BEA table. What was the U.S. balance on insurance services?

    A-$102.3 billion B+$102.3 billion C$170.7 billion D-$136.5 billion

14. Question 14 of 20 · Multiple Choice

    In 2025 the United States had a surplus in services and a large deficit in goods. Which conclusion do the data best support?

    AThe United States has a comparative advantage in every kind of service BIt fits a U.S. advantage in some services but does not prove it CThe United States has no comparative advantage in any good it makes DThe goods deficit proves the United States gains nothing from its trade

15. Question 15 of 20 · Short Answer

    Use the Doravia and Ambrin data in question 2, and suppose each country has 10 workers. (a) Without trade, each country puts 5 workers on panels and 5 on translation. Find the total panels and total pages for the two countries together. (b) Now Doravia puts 7 workers on panels and 3 on translation, and Ambrin puts all 10 on translation. Find the new totals. (c) What does the comparison show?

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16. Question 16 of 20 · Short Answer

    Use the 2025 BEA table. Find the U.S. balance on telecommunications, computer and information services. Explain what this balance might suggest about comparative advantage, and give one reason to be cautious.

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17. Question 17 of 20 · Short Answer

    Using both sources, write a short argument (4-6 sentences) answering this question from 1841: should a nation protect a young industry in which it has no comparative advantage today? Present the strongest point on the other side as well.

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18. Question 18 of 20 · Short Answer

    When a country specializes by comparative advantage, total output rises. Explain why some workers may still be worse off, and name one way a country could help them without giving up trade.

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19. Question 19 of 20 · Short Answer

    In Isvar it takes 4 worker-hours to grow a crate of pears and 8 worker-hours to produce an architectural drawing for a foreign client. In Oruna it takes 6 worker-hours for a crate and 24 worker-hours for a drawing (invented data). (a) Find each country's opportunity cost of one drawing, in crates. (b) Which country has the comparative advantage in drawings, and which in pears? (c) Give a price for one drawing, in crates, at which both would gain.

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20. Question 20 of 20 · Short Answer

    Services can be traded across borders even when nothing is shipped. Choose one category from the BEA table and explain how a U.S. company or worker could export that service to a buyer in another country.

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These standards connect to D2.Eco.14.9-12: prerequisites to review first, parallel standards at the same level, and next steps that build on it.

Standard text: National Council for the Social Studies (NCSS), The College, Career, and Civic Life (C3) Framework for Social Studies State Standards: Guidance for Enhancing the Rigor of K-12 Civics, Economics, Geography, and History (Silver Spring, MD: NCSS, 2013). NCSS was not involved in the production of this lesson and does not endorse it.