| Game: #91 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Competitive markets |
| Objective: | Illustrate basic elements of market theory and introduce students to the mechanics of the pit auction.. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #1) |
| Abstract: | Class is divided into buyers (high and low value) and sellers (high and low cost) and participate in a pit auction. Experiment is followed up with extensive lab report questions in which students must compare the experimental results to the theoretical predictions. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | Bergstrom & Miller’s Experiment 2 involves shifting supply curves and allows sellers to sell more than one unit. Bergstrom & Miller’s Experiment 3 introduces a sales tax on sellers and then on buyers. |
| See also: | Price system games |
| Game: #92 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Prohibited markets |
| Objective: | Illustrate the effects of prohibitions against buying and selling a good. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #4) |
| Abstract: | Class is divided into buyers (addicts and non-addicts) and sellers. Addicts have a high buyer value ($30) relative to non-addicts ($15). Furthermore, addicts suffer a loss of $20 if they do not buy any drugs; non-addicts simply get zero profits if they do not buy any drugs. Sellers may sell up to two units at a cost of $10 per unit. Experiment is divided into three sessions. Session 1 is a baseline experiment with no unusual rules. Session 2 introduces an imperfect enforcement of prohibition. If a seller brings two contracts to the market manager, one of the contracts will be ‘confiscated’ and the seller must pay a fine of $5. If a seller brings only one contract to the market manager, it is confiscated and a fine is imposed on the seller. In session 3, the police resell the confiscated drugs to the original buyers at the originally negotiated price. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period. |
| Variations: | None indicated |
| See also: | Market intervention games |
| Game: #93 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Minimum wages |
| Objective: | To introduce students to a simple example of a labor market and illustrate the effects of a minimum wage law. The notions of involuntary and voluntary unemployment are also developed. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #5) |
| Abstract: | Class is divided into employers and workers. Each employer can hire up to two workers. An employer’s revenue from hiring one worker is $20 and from two workers it is $30. Workers are divided into low opportunity cost of working ($5) and high opportunity cost ($12). The experiment is divided into three sessions. Session 1 is a baseline experiment with no minimum wage law. Session 2 introduces a minimum wage of $15 per worker. Session 3 maintains the minimum wage but introduces an increase in labor demand by allowing employers to hire up to four workers. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Market intervention and labor market games |
| Game: #94 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Externalities |
| Objective: | Illustrates the inefficiencies of negative externalities and policies to correct for them. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #6) |
| Abstract: | Class is divided into buyers and sellers and participate in a pit auction for lawn ornaments. Each lawn ornament sold imposes total damages of $15 on society, where the individual damage to each participant is calculated as d = $15/(number of participants). The experiment is divided into three sessions. Session 1 is the baseline/no controls market that generally leads to the typical competitive equilibrium that, because of the negative externality, has too many trades from an efficiency point of view. Session 2 introduces a pollution tax imposed on each seller of ornaments and that is set equal to the damage imposed by the sale of ornaments. Session 3 introduces tradable pollution permits. Permits are distributed to some students prior to trading in the ornament market. A seller of ornaments must first obtain a pollution permit before a trade in ornaments can be consummated. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Externality games |
| Game: #95 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Monopolies and cartels. |
| Objective: | Illustrates the fundamental issues associated with market power. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #7) |
| Abstract: | Class is divided into sellers and buyers of airline tickets and participate in a posted price market. Five students are designated as ticket sellers (airlines). The rest of the class is divided into one of two types of buyers: student or non-student. Most non-students have a higher buyer value than the students. The experiment is divided into four sessions. In session 1 the five sellers meet in secret to set an output quota for each firm. Each seller is given blackboard space on which to post a price. The price cannot be changed during a trading period. Buyers are then allowed to ‘shop’ for the best price. Sellers cannot sell tickets beyond their quota. Session 2 is similar to session 1 except that the quotas will not be enforced by the market manager (instructor). Sellers can also change their posted price during a given trading period. Session 3 is similar to session 1 except that it introduces the possibility of price discrimination among students and non-students. Session 4 maintains the enforcement of cartel quotas and price discrimination but allows the resale of tickets among traders. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | Sessions 1-3 can fit into one class period; session 4 may require some extra time. |
| Variations: | None indicated |
| See also: | Monopoly games |
| Game: #96 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Entry and exit. |
| Objective: | To illustrate the short and long run equilibrium characteristics of a competitive market under entry and exit conditions. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #8) |
| Abstract: | The class participates in a two-stage posted-price market simulating the restaurant business. All students are buyers of restaurant meals and also have the opportunity to be a seller of restaurant meals. The experiment is divided into two sessions. Session 1 begins by posting a rough estimate of the demand for restaurant meals for all to see. In stage 1, each student is sequentially asked if they would like to open a restaurant for the current period. In stage 2, each restaurant is given blackboard space to post prices after which buyers are then allowed to shop for the best price. If too many restaurants open during the period, some will lose money. If too few restaurants open, they will make profits that will attract new entrants in later periods. Session 2 introduces a sales tax on each restaurant meal sold in order to simulate the effects of an increase in the variable cost of business. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Competitive entry games |
| Game: #97 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Measuring productivity |
| Objective: | Illustrate a production process subject to diminishing returns to the variable input. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #9) |
| Abstract: | Class is divided into groups of 5 and must produce paper airplanes under a time constraint. Output is recorded and various productivity measures are calculated. Process is repeated with as many workgroups of size 10, 15, and 20 as possible. Diminishing returns should be observed quite clearly. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Supply games |
| Game: #98 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Comparative advantage and trade |
| Objective: | Illustrate the role of comparative advantage and specialization in generating gains from trade. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #10) |
| Abstract: | Class is divided into two groups of workers, Richlanders and Poorlanders. Every worker has 20 hours of labor to divide between producing bread or fish. Richlanders have an absolute advantage over Poorlanders in producing both goods. Poorlanders, however, have a comparative advantage in producing bread. The experiment is divided into two sessions. In session 1 no trade is allowed between the groups. Each student must simply allocate time between fish and bread production and submit the choice taken to the instructor. Student payoffs are determined by the minimum of the quantities of bread and fish production. Thus, an equalized output of the two goods is the optimal allocation. Session 2 is divided into two stages. In stage 1 the students determine their production amounts and obtain trading tickets for each unit of their production. In stage 2 the groups are allowed to trade with each other. After trading is completed, the final commodity holdings are recorded and payoffs determined. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | International trade games |
| Game: #99 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Imperfect information and adverse selection |
| Objective: | To illustrate the ‘lemons problem’ in a market characterized by asymmetric information. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #11) |
| Abstract: | A used car market is simulated in which some cars are of good quality and some are ‘lemons.’ Used car owners know their car type. A good car is worth $1600 to the original owner and a lemon is worth $0. Used car dealers can not tell which cars are good before buying them. A good car is worth $3500 to dealers and lemons are worth $500. The experiment is divided into four sessions. In session 1 the instructor leads the class through a thought experiment in which each student imagines himself as a used-car dealer who sets a price and can buy as many used cars as people will sell to him at that price. The class considers two situations: one in which there are equal numbers of good and bad cars and another in which there are twice as many lemons as good cars on the market. The purpose is to lead the student to the profit maximizing answer in each situation, namely, $1601 in the first situation and $1 in the second situation. Session 2 begins by appointing 6 students as dealers and all others as used-car owners. Half of the used cars are designated as good and half are lemons. Dealers post the prices they are willing to pay on the blackboard. Car owners then sell their cars at the best price. Session 3 is the same as session 2 except that 2/3 of the used cars are lemons. Session 4 is similar to session 2 except that each car owner has a certificate indicating the quality of the car that each possesses. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Information games |
| Game: #100 | |
| Course: | Micro |
| Level: | Principles and up |
| Subject(s): | Auctions |
| Objective: | To learn about the procedures of some commonly used types of auctions and optimal bidding strategies. |
| Reference and contact: | Bergstrom, Theodore and John H. Miller. Experiments with Economic Principles. McGraw Hill, 1997 (Experiment #12) |
| Abstract: | A series of
private and common value auctions are demonstrated. The
private value auctions are broken into four types:
English, Dutch, First-Price Sealed-Bid, and Second-Price
Sealed-Bid. Buyer values are determined using the last
four digits of the student’s social security number.
For example, in the English auction, the last two digits
represent the buyer value while in the Dutch auction the
buyer value is 100 minus the last two digits. After each
auction, the winning bid and the highest and second
highest buyer values are posted on the board for
comparison. There are three common value auctions: pennies in a jar, the unreliable accountant, and the escalation auction. The first two illustrate the often observed ‘winner’s curse,’ while the last one illustrates the ‘overbidding’ phenomenon associated with patent races, for example. As the name implies, a jar is filled with pennies whose total value is known only to the instructor. Students bid on the jar by writing their bids on a piece of paper. The highest bid wins. The unreliable accountant auction involves bidding on a commodity whose value is the same for all bidders. Buyers do not know the exact value of the commodity. However, each buyer can get an accountant’s estimate of the commodity’s value by drawing a slip of paper containing such estimates. Students know that the true value of the commodity is equal to the average of the accountant’s estimates. Each student makes a bid after observing their accountant’s estimate. The escalation auction is similar to Haupert (1994) in that a dollar bill is auctioned off under the rule that the second highest bidder must pay along with the high bidder. |
| Class size: | 15 to 60 work smoothly; larger class sizes can be accommodated. |
| Time: | One class period |
| Variations: | None indicated |
| See also: | Auction games |
| Copyright 2000 by Greg Delemeester
and Jurgen Brauer Last Updated: 02/20/2005 |