Game: #1 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Demand curve |
Objective: | To experimentally derive a demand curve |
Reference and contact: | Brock, John. "Experimental Derivation of a Demand Curve." Classroom Expernomics, 1(2), Fall 1992, pp. 3-4. [adapted from Weidenaar (1972)] |
Abstract: | On a warm day, bring two ice-cold Coke-bottles to class (on a cold day, some hot coffee or chocolate). Ask how many students would be willing to pay 10c for one bottle; then 20c; and so on. Tabulate and graph the result (voilá: a demand curve). Then ask students to assume that the day was really a whole lot hotter (or colder) and repeat the exercise (the demand curve shifts). |
Class size: | Any size (for very large classes, deal only with a couple rows or columns of students) |
Time: | A few minutes |
Variations: | None indicated |
See also: | Demand games |
Game: #2 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Marginal utility/diminishing marginal returns |
Objective: | To teach students an intuitive understanding of total utility, marginal utility, and diminishing marginal utility |
Reference and contact: | Gillette, David and Robert delMas. "Psycho-Economics: Studies in Decision Making." Classroom Expernomics, 1(2), Fall 1992, pp. 5-6; gillette@truman.edu |
Abstract: | Ask students to rate their present well-being on a scale of 0 (lousy) to 100 (bliss). Then feed them Hershey kisses, one at a time. After each 'kiss,' ask students to again rate their well-being. Collect the rating-sheets, tabulate, and display total utils, marginal utils, and (eventually) diminishing marginal utility. (Warning: the authors discovered at least one student whose marginal utility never dropped – a chocolate addict! Perhaps better to feed them marshmallows.) |
Class size: | Small to large |
Time: | Within one class period |
Variations: | None indicated |
See also: | Demand games |
Game: #3 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Short-run production/production costs |
Objective: | To help students understand TPP, APP, MPP, TFC, TVC, TC, MC, AFC, AVC, AC (and the associated short-run production and cost curves) |
Reference and contact: | Neral, John. "Widget Production in the Classroom." Classroom Expernomics, 2(1), Spring 1993, pp. 7-8. or contact Dr. John Neral; Department of Economics; Frostburg State University; Frostburg, MD 21532; ph.: 1-301-689-4265 j_neral@fre.fsu.umd.edu |
Abstract: | Provide students with (or ask them to bring) lots of paper and a (working) stapler. Divide the class into large groups (say, eight or more per group). Provide each group with half a table of production room (the shop floor). That plus the stapler is the fixed capital input (K=1). The group is to produce as many widgets as possible (fold the paper twice and staple it) within one workday, say, a 30-second time period. Start with no labor (L=0) to produce Q=0, never minding the stares. Then increase to L=1; have the group record total production (TPP) in the 30-second time-span. Then increase to L=2 and so on until diminishing returns set in (perhaps even negative returns if you like). Let the groups compute, tabulate, and graph their TPP, APP, and MPP. Then assign costs, e.g., K=$10, L=$5, and let the groups compute, tabulate, and graph the cost variables. They should get something more or less bizarrely similar to the nice textbook curves. (They'll learn about the convenience of abstraction pretty quickly this way.) |
Class size: | Small and up. For very large classes, part of the class could watch with amusement; they'll get the point. Alternatively, part of the class could do the production runs; another part of the class to computation, tabulation, and graphing. |
Time: | One class period |
Variations: | None indicated |
See also: | Supply games |
Game: #4 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Simple market clearing |
Objective: | To demonstrate that and how supply and demand determine equilibrium market quantity and market price |
Reference and contact: | Nelson, Paul S. and Paul W. Grimes. "Supply and Demand Analysis: Using Markets Created in the Classroom." Journal of Education for Business, 66(6), July/August 1991, pp. 370-373, which contains instructions, or contact Dr. Paul Grimes; College of Business and Industry; Mississippi State University; Mississippi State, MS 39762; pwg1@ra.msstate.edu |
Abstract: | Each student
is assigned a position as a 'buyer' or a 'seller' in a
fictitious market. The instructor hands out cards
indicating each student's reservation price as a buyer or
a seller, with unique prices on each card. For example,
the buyers' cards range from $11 to $9 in steps of 10 or
25 cents, and conversely the sellers' cards reflect a
similar price range (sellers' production costs). The instructor serves as auctioneer. Ask buyers and sellers to assemble across from each other. Ask for a opening offer to buy, say "Buyer 6 will buy at $5.00." Any seller can accept ("Seller 3 accepts"). If a trade is completed, that pair of students exits the trading pit. The trade is recorded on the chalkboard. A trading round ends when no more offers to buy or sell are forthcoming. Then, all students rejoin the trading pit and a second round may be started. In the authors' experience a "stable equilibrium will be reached in three or four trading periods, which normally occurs an average of 15-20 minutes after the instructions are read" (Nelson and Grimes, 1991, p. 371). |
Class size: | Not much less than 10 buyers and 10 sellers; very large classes can be 'reduced' by designating groups of 2 or 3 students as 'one' buyer or seller. |
Time: | 50 minutes with time for probing (after all some potential buyers won't buy and some potential sellers won't sell at equilibrium price) |
Variations: | You can make this a labor, international, currency, future, or any market. You can shift demand and supply schedules by handing out a new set of cards with an appropriate explanation (e.g., as to why production costs have shifted). You can introduce a price control, floor or ceiling, and either announce it or not announce it. Or, instead of handing out new cards, ask students to change their reservation price between, say, 10% and 30%, so that even the instructor doesn't know what is going to happen (except that an equilibrium will be reached). |
See also: | Price system games |
Game: #5 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Chaos and Order in Markets |
Objective: | To teach students (a) how apparently chaotic behavior is in fact orderly and (b) how economics makes correct predictions |
Reference and contact: | Gillette, David and Robert delMas. "Psycho-Economics: Studies in Decision Making." Classroom Expernomics, 1(2), Fall 1992, pp. 5-6; gillette@truman.edu |
Abstract: | In your first lecture (first course lecture or first lecture on the price system), show students a sealed envelope, then start by asking students to write down one or two words to the question: "What comes to mind when you hear St. Louis, Kansas City, New York, or Los Angeles and 5 o'clock rush hour traffic?" (Answers usually are: headache, stress, and the like.) Without tabulating the results, go immediately to the first trading round of a double-oral auction market (see Game #4, #6, or #7). Then ask students to write down one or two words to the question: "If economic markets regularly behaved in this fashion, how would you describe their behavior?" (Usual answers: chaotic, confusing, unorganized, etc.) Then complete the other trading rounds until an equilibrium price and quantity is found. Open a sealed envelope which contains the predicted price-quantity equilibrium. |
Class size: | Small to large |
Time: | One class period |
Variations: | None indicated |
See also: | Price system games |
Game: #6 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Market clearing/market efficiency |
Objective: | Basically the same double-oral auction game described earlier (#4), but geared toward teachability and classroom efficiency. |
Reference and contact: | DeYoung, Robert. "Market Experiments: The Laboratory versus the Classroom." Journal of Economic Education, 24(4), Fall 1993, pp. 335-351. |
Abstract: | The game is very similar to that described earlier (#4), and the author's discussion primarily focuses on issues of exposition: how the instructor collects and displays the market information generated by the players so that economic concepts are more easily understood (the researcher employs experiments to 'test' theory, the teacher uses experiments to 'teach' theory, writes DeYoung). For example, by computing a market efficiency coefficient (actual surplus realized divided by potentially achievable surplus) over successive trading rounds, students see that over time they near 100% efficiency (as theory predicts). Thus, the objective is to set up the game and the information display to generate a large bundle of concepts (consumer/producer surplus, allocative efficiency, prices, equilibrium, deadweight loss, social value of free markets, and so on) that subsequently can be examined one-by-one in the theory lectures by reference to the game. |
Class size: | Small (10 to 30) |
Time: | One class period |
Variations: | Try a negotiated-price mechanism (i.e., a trading pit simulation) where 'buyers' and 'sellers' search one another and merely announce the completed trade to the instructor who then publicly displays the trade and price. The advantage is that there is no auctioneer involved. Further, because of search costs, it will take more trading rounds to achieve price convergence. Thus, one can easily introduce the concepts of how institutions and search (and, in another wrinkle, transaction) costs change the equilibrium dynamics of the market. |
See also: | Price system games |
Game: #7 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Buyer-seller auction-trading/general market-clearing exercise |
Objective: | To demonstrate the effect of different price elasticities on price convergence in the market (the more price elastic, the faster the convergence). |
Reference and contact: | Keating, Barry and James Grace. "The Walrasian Simulator." Mimeo. Notre Dame, IN: College of Business Administration, University of Notre Dame, 1993, or contact Dr. Barry Keating and/or Dr. James Grace; College of Business; University of Notre Dame; Notre Dame, IN 46556; barry.p.keating.1@nd.edu |
Abstract: | Similar to #4
described earlier in that reservation-price cards are
handed out to students. For the first run, the simulation
may run for ten or so "trading days," each
"day" lasting about two or three minutes. Any
completed trade (a buyer and seller agree on a price) is
signaled to the instructor who writes the information on
a board (or types it in a computer connected to a
projector and display screen). Those completing a trade
drop out of the market for that day. A trading day ends
when no more trades occur. Play ten trading day rounds or
so and plot the price per trade (or have a computer
spreadsheet template prepared to quickly to do the
plotting for you). Students will note that over repeated
trading and trading days, the prices tend to converge
toward the textbook 'equilibrium' price. Also compute (or
have the spreadsheet compute and display) a convergence
coefficient (the standard deviation of the actual trading
prices per day divided by the predicted equilibrium
price; the coefficient will likely consistently decline
from day one to day n). Now rerun the game (for the same price-quantity equilibrium solution), but with steeper (or flatter) demand and supply curves (i.e., supply students with a different set of reservation-price cards). The steeper the slopes, the longer it will take to achieve convergence, and the higher the coefficient will be. That is, the same equilibrium conditions/solution can be brought about by different markets. Once played, the students will much better appreciate the role of economic theory and better comprehend the static textbook equilibrium story as an outcome of the dynamic game. |
Class size: | Small and up (a small group could play; the others observe results displayed on an overhead projector) |
Time: | 75-minute class period |
Variations: | (a) play the basic price-clearing game early in the course; replay the same game as you introduce new concepts (e.g., elasticity or price floors/ceilings); (b) vary the number of players and observe convergence speed; (c) change from perfect information to uncertain information by not displaying the individual trades until each trading day is over; (d) make buyers/sellers pay for the price information (market intelligence); (e) allow more than one trade per day per buyer/seller; (f) introduce price floors/ceilings; and so on. |
See also: | Price system games |
Game: #8 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Monopoly prices |
Objective: | To experimentally demonstrate monopoly power |
Reference and contact: | Brock, John. "Experimental Derivation of a Demand Curve." Classroom Expernomics, 1(2), Fall 1992, pp. 3-4. [adapted from Weidenaar (1972)] |
Abstract: | On the last
lecture before your monopoly lecture, hand out a
purchasing agreement on which students sign their name to
agree to purchase from the instructor x-number of
Coke-bottles for a range of prices (say, $1/bottle down
to 20˘/bottle). Students will think this recreates the
earlier experiment (see #1), but this time for keeps.
Paragraph 1 of the purchasing agreement reads innocuous
enough: "1. Once the market price is determined, I
am obliged to buy ...". The instructor takes the
signed purchasing agreements, goes home, and computes the
demand curve (using regression). At the beginning of the monopoly lecture, tell them that you are the Coke-monopolist (assume AC=MC=50˘ or whatever the instructor's cost is), and now you charge according to MR=MC and the instructor is off to the lecture. |
Class size: | 20 and up |
Time: | One class-period |
Variations: | None indicated |
See also: | Monopoly games |
Game: #9 | |
Course: | Micro |
Level: | Principles and up |
Subject(s): | Oligopoly |
Objective: | To illustrate the interdependence of oligopolistic decision-making |
Reference and contact: | Brauer, Jurgen. "Oligopoly Game." Mimeo, Augusta State University, 1994a.; jbrauer@aug.edu [original source unknown, via U. of North Carolina] |
Abstract: | Students are
divided into small management teams (3 or 4 students). A
demand schedule for the entire market is provided as is a
simple cost-function (where, for simplicity, ATC=MC
throughout the entire output range). The objective is for
firms to make profit. The game is played over several
trading rounds. Give students five minutes to make their
first output decision. The instructor collects the firms'
decision and writes the sum of quantity produced
(supplied) on the board. From the given demand schedule,
the market price can now be read, hence revenue per firm,
and their profit or loss. Profit-leaders will usually
jeer and try it stay on top in the subsequent trading
rounds. Over subsequent trading rounds, students will note that their profit is decidedly influenced not only by how much their own firm produces but also by how much the other few firms produce, thus generating interdependency. |
Class size: | 12 and up to 40 or 50; larger classes can be divided into different oligopolies, playing games independent of one another; you will need one student assistant per oligopolistic industry for large classes. |
Time: | In a fifty minute class-period, you will usually be able to play about five rounds or trading days and have time for discussion. |
Variations: | (a) As the game players become familiar with the game, maybe with trading day two or three, the game coordinator (the instructor) can permit the teams to collude with one another and coordinate output plans. Teams are free to coordinate output levels, but are not required to honor their agreements. At minimum output levels, the game reverts, of course, to a monopoly solution, but offers incentives for 'cheating.' (b) If the game goes well, permit mergers with a specified profit/loss sharing arrangement (you may need to expand the trading day to five minutes to allow time for negotiation). (c) If the game goes really well, permit acquisition (out of accumulated profit or debt-financed, i.e., out of expected, future, profits). Note that a firm with low profitability could end up winning the game by negotiating a high buy-out price. In practice, not all acquiring firms do well. |
See also: | Oligopoly games |
Game: #10 | ||||||||||||||||
Course: | Micro | |||||||||||||||
Level: | Principles and up | |||||||||||||||
Subject(s): | Game theoretic oligopoly/information in the marketplace | |||||||||||||||
Objective: | "... to illustrate some of the difficulties involved in price coordination (collusion) under circumstances of imperfect competition" (Hemenway, 1987, p. 727). | |||||||||||||||
Reference and contact: | Hemenway, David, Robert Moore, and James Whitney. "The Oligopoly Game." Economic Inquiry, 25, Oct. 1987, pp. 727-730; contains copy for class instructions; moore@oxy.edu ; whitney@oxy.edu | |||||||||||||||
Abstract: | Students are
given the following pay-off matrix:
At a snap count, all students raise either an open hand (signaling to compete) or a fist (collude). If more than half the students vote for "compete," then "compete" wins, and each student records his/her score (and vice versa when "collude" wins). Play six rounds. If students vote to "compete" in all six rounds (the usual outcome), the highest possible score is 60 points. And here's the catch: a grade will be assigned to each student, based on the points made. >100=A+; 90-100=A; 80-89=B; 70-79=C; 60-69=D; <60=F. Thus, all students will receive a grade of D or worse. After the initial shock, let students play a second round of six votes. Now they start down the collusion road, until some student figures out that cheating "pays," (voting for "compete," when the others vote for "collude" gets you 40, rather than a mere 20, points), where after collusion usually collapses. Finally, you may tell students, after the fact, that the "grading" was merely a device to get them to take the game seriously. |
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Class size: | 15 to 70 | |||||||||||||||
Time: | 15 to 45 minutes | |||||||||||||||
Variations: | (a) change the pay-offs to make it easier or more difficult to get a certain grade. For example, if >120=A+ is required, then 6 x 20 is not enough for an A+ anymore. Hence, the group needs to designate 'cheaters' (who get 40 points) and change the cheaters in each round (bid-rigging). (b) Go from open eyes to closed eyes to shut of all communication and see how the outcome changes. | |||||||||||||||
See also: | Oligopoly games |
Copyright 2000 by Greg Delemeester
and Jurgen Brauer Last Updated: 02/20/2005 |