There is no better way to introduce students to the supply-and-demand model than transforming your classroom into a trading pit!
Economics is often taught at a level of abstraction that can hinder some students from gaining basic intuition. This led acclaimed University of Virginia professor Charles A. Holt to author a classroom exercise that simulates trading on the floor of a commodities futures market using a deck of playing cards. Inspired by his model, the Learning Lab worked with Wharton Economics Professor Ulrich Doraszelski to digitize the game, resulting in one of our most exciting new sims — Trading Pit.
Staying true to its U.Va roots, Trading Pit is designed to promote strategic decision-making and robust interactions between players. The game’s immersive approach, which gets a class out of their seats and into the “pit,” enables students to discover the supply-and-demand model themselves and realize that large numbers of traders are not necessary for obtaining efficient, competitive outcomes. The classroom market powered by this app can be used to illustrate a variety of other factors as well, such as the effects of price controls and shifts in demand or supply. But above all, it serves as a simple tool for increasing interest in (and reducing skepticism about) economic theory.
With an easy-to-navigate interface accessed through their mobile devices, students are divided into buyers and sellers, allotted pricing parameters, and given a set amount of time to make a deal.
“Buyers and sellers, please come to the central trading area… NOW. Everyone ready?” This is where the real fun begins, with everyone shouting prices as they try to find a match (in true trading-pit fashion) and make the most profit possible before the round ends.
Once a deal is found and negotiated verbally, the players use their phones to exchange buyer/seller codes randomly generated through the app, then head to the record their transaction with the game’s facilitator to make it official.
After the negotiated prices have stabilized, the participants can be shown market parameters and asked to explain why the prices converged to the observed levels. The objective is to have students figure out that their negotiated price must be one that balances the quantities demanded and supplied, and this game is proven to drive this equilibrium idea home at a deeply intuitive level.
For more information on Trading Pit, email the Learning Lab team.