Learn With Elaine: Panama Canal Expansion

Supporting comparative advantage, the Panama Canal expansion incentivized global specialization.

Econlife Blog

How a Canal Moved a Bridge

Fact Questions:

1. 1. 1. Why did the Panama Canal need an expansion?
      2. Referring to the diagram in the econlife post, specifically state how supertankers have grown.
      3. How have East coast ports prepared for the super size container ships that are crossing the Panama Canal?
      4. How are truck and rail travel in the U.S. affected by Panama Canal expansion?
      5. Why did New Jersey’s Bayonne Bridge have to be raised?
      6. Summarizing the Asian import graph, state how the Panama Canal expansion affected ship traffic in East Coast and West Coast ports.

The Economic Idea: Comparative Advantage

As the first economist to explain comparative advantage, David Ricardo (1772-1823) understood the synergies of trade. He told us that it does not matter if you are not the best at making something. You just should produce whatever requires the least sacrifice.

For example, if you or your brother can wash the dishes, comparative advantage determines who should do the chore. You just need to ask what will be sacrificed. Assume you would be doing homework but your brother would play video games. Then he sacrifices less and should do the dishes while you complete your homework.

Similarly, by expanding world trade, widening the Panama Canal boosted global production and the potential for comparative advantage.

Activity Goal: To find comparative advantage in our everyday lives.

Procedure: A small group exercise.

1. 1. In class, remotely, or at home, divide into pairs or small groups of 3 to 5 people.
   2. Each group should decide when an individual, a family, your school, and businesses achieve the benefits of comparative advantage by performing different activities. Be sure to select specific examples.
   3. Re-gather as a class. Each group can share its comparative advantage examples.
   4. Optional: You might want to discuss how you benefit from comparative advantage.