Why do people trade?
No one can make everything they need. A farmer grows food but needs shoes. A shoemaker makes shoes but needs food. Trade, the exchange of goods and services, helps everyone get what they need and want.
People trade because of specialization: when people focus on what they do best, they can produce more, then trade with others.
Barter and money
Barter
Long ago, people used barter: trading goods or services directly without money.
"I’ll trade you three fish for a basket of berries."
Barter has problems:
- Both people must want what the other has.
- It’s hard to decide fair values: how many fish is a cow worth?
- Some things can’t be divided easily.
Money
Money solves these problems. It is accepted by everyone, makes it easy to compare values, and can be saved and divided.
Supply and demand
Prices in a market are shaped by supply and demand.
- Supply is how much of something sellers are willing to sell.
- Demand is how much of something buyers want and can afford.
The basic rules
| Situation | What happens to the price? |
|---|---|
| demand goes up, supply stays the same | price usually goes up |
| demand goes down | price usually goes down |
| supply goes up | price usually goes down |
| supply goes down | price usually goes up |
Examples
- Hot day, lemonade stand: lots of people want lemonade (high demand). You could charge more.
- Too many strawberries: in summer, farms harvest lots of strawberries (high supply), so prices fall.
- A popular toy: everyone wants the hot new toy before the holidays, but stores have only a few (high demand, low supply). Prices rise and it sells out.
- Snow shovels: demand jumps after a big snowstorm.
- Winter coats in spring: few people want them, so stores have sales.
Prices act like signals. High prices tell producers to make more and buyers to buy less. Low prices tell producers to make less and buyers to buy more.
Trade between countries
Countries trade too.
- An import is a good or service bought from another country.
- An export is a good or service sold to another country.
Countries trade because they have different natural resources, climates and skills.
| Country | Some exports | Some imports |
|---|---|---|
| Canada | oil, cars and car parts, wood, wheat, maple syrup, potash | fruits and vegetables in winter, electronics, clothing |
| United States | aircraft, cars, computers, soybeans, medicine, movies | cars, oil, electronics, clothing, toys |
Canada and the United States are each other’s biggest trading partners. Every day, huge amounts of goods cross the border by truck, train, ship and pipeline.
Look at the labels on your clothes, toys and food. Where were they made?
Trade agreements
Countries sign trade agreements to make trading easier, often by removing tariffs, which are taxes on imports. Canada, the United States and Mexico have a trade agreement called CUSMA (called USMCA in the U.S.).
Try it yourself
- Look at five labels at home. Make a list of the countries where things were made.
- Run a pretend market: change the price of an item as supply and demand change.
- Explain what would happen to the price of pumpkins in October and in December.
- Try a barter game: trade cards or stickers without money. What problems come up?
Quick recap
- People and countries trade to get things they can’t easily make.
- Barter is trading without money; money makes trade easier.
- Supply is how much sellers offer; demand is how much buyers want.
- When demand rises or supply falls, prices usually go up.
- Countries import and export goods; Canada and the U.S. are top trading partners.