Download lesson outline and handouts (Microsoft Word)
National Content Standards Addressed:
Standard 1: Productive resources are limited. Therefore, people cannot have all the goods and services they want. As a result, they must choose some things and give up others.
Standard 3: Different methods can be used to allocate goods and services. People acting individually or collectively through government must choose which methods to use to allocate different kids of goods and services.
Standard 5: Voluntary exchange occurs only when all participating parties expect to gain. This is true for trade among individuals or organizations within a nation, and among individuals or organizations in different nations.
Classroom Activities and Simulations
“Bag and Baggage” is one of the many variations of the well-known “bag game,” used to teach students that voluntary exchange creates wealth and that wealth-creation is enhanced by opening the market to more traders. “Bag and Baggage” expands our appreciation of the magic of voluntary trade by incorporating “polluted” articles and allowing traders with diverse interests and tolerance of “pollution” to interact freely. In doing so, it calls into question any attempt to define in absolute terms such abstractions as “pollution” or “environmental quality.”
Like all simulations, “Bag and Baggage” creates a common experience which serves as the foundation for new conceptual learning. In this activity, students see that markets can help to reduce pollution if people value a cleaner environment, and if they have good information about the pollution that is present.
(Note: See the FTE version of the bag activity, “The Magic of Markets,” in the Economics for Leaders curriculum. See
The Magic of Markets
If students are unfamiliar with the bag game or the fact that voluntary trade creates wealth, play “The Magic of Markets” first. After debriefing, play a single round of “Bag and Baggage.”)
1 class period
- 1 trading bag per student (Each bag contains one or more items, such as candy, gum, small toys, school supplies, hall passes, answers to quizzes, fast food gift certificates, etc. Items in the bags need not be of equal value; clear differences in the numbers and types of items in each bag increase the impact of the activity.)
- “pollution” – use things like baby powder, flour, sand, dirt, hand lotion, shaving crème, shampoo, gum wrappers to “pollute” some of the bags and/or their contents.
- Overhead transparency: “Voluntary Trade Creates Wealth” (p.7)
- Prepare the trading bags for each class. Place the trading articles in brown paper bags and seal (staple) the bags.
- If students are to provide the bags themselves, give the following instruction approximately 1 week before the activity. “Bring from home some thing or things you think someone else might value and that you want to trade away. Put the item(s) in a brown bag and don’t show the contents to anyone.”
- After collecting the bags from students, open them to check the items, re-sort the items and add a few new items. If you’re running the activity with more than one class, mix the bags from different classes.
- Divide the bags into groups of 5 or 6. Mark each group of bags with a different letter of the alphabet or a different colored dot.
- “Pollute” some bags by smearing hand lotion, shampoo, or dirt on the bag and/or adding sand, gum wrappers, etc. to the bag, and/or covering the item with baby powder, flour, shampoo, etc. (There should be one or two polluted bags in each of the trading groups.)
- Mix all the bags for each class in a large box or trash bag.
- Explain to students that they will be participating in a trading activity. They will be given a trading bag and the item or items in the bag will be theirs. (Make sure that students understand that they don’t have to give back the items at the end of the game.) When the trading rounds start, they will be free to trade or not, as they wish.
- Instruct students to keep their unopened bags on the desks in front of them. Distribute the bags, randomly, from the box.
- Have students open their bags without removing the contents or showing the contents to anyone else. After students have viewed the contents of their bags, ask them to rate their satisfaction with what they received. (Remind them that what they received is now theirs.)
- 1 is the lowest rating and indicates that students are very dissatisfied with their bag. 5 is the highest rating and indicates that students are extremely happy with their bag. After explaining the ratings, ask for a show of hands. (Alternately, you may wish to have students record their ratings on small pieces of paper. Collecting the paper rating slips makes it easier to ensure that every student submits a rating.)
- ” Record the ratings on the board or an overhead transparency. (For a more dramatic effect, record the ratings on the transparency, but don’t display the results until the debriefing.)
- Direct students’ attention to the letters or dots on their trading bags. Designate a different trading area in the room for each group. Ask students to move to their trading areas without opening their bags.
- When trading groups have been formed, tell students that there will be a short trading period. Remind them that the contents of the bag are theirs and it is up to them whether they trade or not. Open the trading round. (Allow the round to continue for a few minutes, as long as there seems to be active trading.)
- End the trading round and have students return to their seats. Collect rating data again. (If you are using a show of hands rather than paper ballots, it’s important to ensure that ALL students raise their hands for their ratings, even if they did not trade or if their rating did not change. Students may change their ratings even if they did not trade.) Record (and display, if desires) the second set of ratings.
- Solicit input from a few students about whether or not they traded and why. Keep the discussion brief, but emphasize that people traded because they thought that they would be better off – and that this was true for both parties in any exchanges that took place. Questions:
- Who traded? Why did you trade? Are you happier with what you have now than what you had before?
- (To the trading partner) Why did you give up (the traded item)? Are you happier with what you have now than what you had before?
- Who didn’t trade? Did you want to trade?
- (Yes) Why did you want to trade? Why didn’t you trade?
- (No) Why didn’t you want to trade?
- Announce that in the next round participants may trade with anyone from any group. Then, open the floor for participants who wish to advertise the item they will have available for trade in the next round. (Limit each advertisement to 15 seconds.)
- Open the trading round, reminding students that they may trade with anyone in the room, if they wish to do so. (While students are trading, tally the 2 previous sets of satisfaction ratings.)
- When trading begins to slow, announce that the round will end in one minute. After the minute, end the round and ask students to return to their seats.
- Collect ratings again, by a show of hands or with ballots. Remind students that they are rating what they currently have in their possession, and that everyone must submit a rating even if it hasn’t changed or they haven’t traded since the last round.
- Who traded and why did you trade? Select several students to share their experiences. Point out that each expected to be better off as a result of the trade.
- Who didn’t trade and why didn’t you trade? Select several students to share their experiences. Some didn’t trade because they didn’t anticipate that they would be better off; they liked what they had better than anything that was available in trade. Others didn’t trade because no one would exchange with them. Emphasize that both parties have to be better off in order for exchange to take place.
- Generalize: Is voluntary trade a win-lose, win-win, or lose-lose interaction? Explain why this is always the case. Voluntary trade is win-win. Both parties believe that they will benefit. This is possible because people’s values and interests differ. The person who ends up with the item is the one who valued it most.
- Based on your experience and on the generalization we just made, why do people trade? People trade because they compare the costs and benefits of trading and they believe that the benefits of trading outweigh the costs; in other words, they value what they will give up less than they value what they will receive in the trade.
- Based on your experience and the implications of the generalization, is it true that trade creates wealth? If so, how? If not, why not?
- Yes, as the items in the room were moved around to the people who valued them the most, the wealth or satisfaction increased.
- Use the tally from the 3 rounds of ratings to reinforce this point. Tally the 3rd round of ratings and point out the increased satisfaction point total to the students. Also point out that as the market grew, so did the satisfaction point total. It clearly was better to have more potential trading partners than fewer. (Be careful not to suggest that the higher total means that every individual was better off because of trade. Some were not even though the total wealth of the class – measured as satisfaction – increased.)
- Yes, as the items in the room were moved around to the people who valued them the most, the wealth or satisfaction increased.
- In terms of any specific trade proposal, how did you decide whether or not to make the exchange? People compare the cost of giving up what they currently have with the anticipated benefit of the item being offered in trade. If the anticipated benefits exceed the costs, they accept the trade.
- What is the cost of trading? The item traded away. What is the benefit? The item received in the trade.
- Whose original bag or item was “polluted” in some way? How did that affect your original rating? Did you trade the item? Why or why not? How did the fact that it was polluted affect your willingness to trade? Your ability to trade? Anticipate a variety of answers. Some students may disagree about whether an item was polluted or not in the first place. Expect students to react to the pollution differently, some will insist that the pollution greatly reduces the value of the item and others will disagree – “After all, it was only a dirty wrapper.”
- Did you try to clean up the item before you traded? Why or why not? Depends both on the original owner’s perception of the pollution and the original owner’s perception of how the pollution will affect others.
- If so, how much clean up did you do and why? The owner looked at the cost of clean-up and his or her estimation of how much cleaning would be necessary before someone would be willing to trade. The owner is doing a cost (time and effort to clean up) / benefit (increased likelihood of trading) analysis.
- Did you advertise the item? If so, how and why? If not, why not? Expect a variety of answers. Some will have tried to hide the pollution; some will have tried to show that the value of the object is great enough to overcome the cost of dealing with the pollution.
- (To the person who traded for the item:) Why did you trade for a polluted item? Because he valued the polluted item more than the item he gave up in trade. (The benefits of the polluted item were greater than the cost of giving up the item he originally owned.)
- What was the cost to you of trading for the polluted item? Whatever was traded away, plus the resources, time, and effort to do whatever clean-up the new owner wanted to do (keeping in mind that he may have chosen to do no clean-up). What was the benefit? The satisfaction associated with owning the polluted item.
- How did the pollution affect the cost? It depends on how much clean-up the new owner would do. How much clean-up are you going to do? It depends. Individuals’ value and tolerance for “pollution” vary. If the person acquired the item in hopes of trading it for something else, then he presumably has figured in the cost of doing enough clean-up to make the next trade.
- How did you decide whether it was worth it to trade for the polluted item? The benefits of having the polluted item exceeded the cost of the traded item plus the resources expended in clean-up.
- (To a person who refused to trade for a polluted item:) Why were you unwilling to trade? The simple answer is that the benefits of the polluted item did not outweigh the costs of giving up his own trade item plus any resources he’d have to use to clean the polluted item to his own standards.
- What would have made you willing to trade? Expect a variety of answers. Some might have been willing to trade had the original owner engaged in some degree of “pollution reduction” before trying to trade the item. Some might not have been willing to trade regardless of the level of clean-up – because they didn’t value the item over what they had, regardless of whether or not it was polluted.
- What effect did “advertising” have on decisions about whether or not to trade for the polluted item? Expect a variety of answers. Some will have rejected the trade because of the pollution. Others will value the item enough that they’re willing to trade despite the pollution.
- Suppose we conducted another round of the activity in which we provided information about pollution (“production residuals”) that results when the item is produced. How would this information influence the outcome of trades? (The reactions will vary. Often, traders will not change their behavior if they really like the item. Others will boycott. However, those who boycott may also realize that their refusal gives someone else the opportunity to get an item they really liked. There is a cost to their refusal.)
- The big idea illustrated in this activity is that Voluntary Trade Creates Wealth. (The satisfaction points increased.)
- This big idea has important implications for analyzing environmental issues and evaluating proposed solutions:
- People’s values differ.
- People’s values influence their reaction to pollution (and other environmental issues).
- There is a cost to pollution and people value that cost differently.
- Decisions about pollution and other environmental issues are made by comparing anticipated costs to anticipated benefits.
- Voluntary exchange creates wealth, even in the situation where the exchange carries some baggage like pollution.
- Markets and voluntary exchange can help us achieve the level of environmental quality we want.
- The more people value environmental quality, the more market forces will put pressure on polluters to stop polluting.
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