Additive Applications: Expanding the Use of a Pit Market Game
When I teach supply and demand in Principles of Micro/Macroeconomics I use the game
developed by Holt (1996). For this game the students create a supply and demand model in a pit
market based on the Uno cards dealt to them. The model is based on the transactions that took
place in two rounds. A shock is sent to the market in the next two rounds. For the last two
rounds a price ceiling is enforced. The students then complete the assignment found in the
appendix of Holt (1996). The instructions and the assignment are attached to the end of this
document. I collect the assignments and then we move onto other concepts to discuss supply and
demand.
Later in the quarter when we are talking about elasticity I hand back the assignments. We
compute the price elasticity of demand and supply for each of the supply and demand curves.
Between periods 1 & 2 and periods 3 & 4, the shock to the economy has led to shifts in supply
and/or demand. The price elasticities have also changed. As a class we talk about the relationship
between shifts and elasticity. We then talk about if this type of behavior will always happen or
just for this situation. Once again I collect the assignments.
Further into the quarter when we are talking about consumer/producer surplus I hand
back the assignments. We compute the consumer/producer surplus for each supply and demand
graph. The relationship between the game and the surpluses is discussed.
The game introduced by Holt (1996) does not have to stop at supply and demand. The
game can be applied to explain other economic principles. This may be true for other economic
classroom games.
Reference:
Holt, JA. Classroom Games: Trading in a Pit Market. Journal of Economic Perspectives 10 (1),
Winter 1996, pp. 193-203.
Supply and Demand Experiment
Purpose: This experiment investigates the interaction of supply and demand in a simulated
market. Generated data will demonstrate how economic theory can predict “typical” behavior.
This simulated market has essentially the same organization as the New York Stock Exchange or
the Chicago Board of Trade, except on a smaller scale. In a real stock or commodity market,
brokers in the “pit or floor” trade by calling out their buy and sell prices. Eventually, two buyers
and sellers agree upon a price and quantity, which is noted for later verification.
Instructions: The instructor will divide the class into a limited number of buyers and sellers.
Each buyer and seller will receive a colored, numbered card. Do not reveal the number on your
card to other players. The buyers’ cards are blue and red, and the sellers’ cards are green and
yellow. Each card represents one “unit” of an unspecified commodity that can be bought by
buyers or sold by sellers.
Trading: Buyers and sellers will meet in the front of the room and negotiate during a five-minute
trading period. Prices must be multiples of 50 cents. When a buyer and a seller agree on a price,
they will come together to the front desk to report the price, which will be announced to all.
Then the buyer and seller will turn in their cards, return to their original seats and wait for the
trading period to end. There will be several trading periods.
Sellers: You can each sell a single unit of the commodity during a trading period. The number
on your card is the dollar cost that you incur if you make a sale. You will be required to sell at a
price that is no lower than the cost number on the card. Your earnings on the sale are calculated
as the difference between the price that you negotiate and the cost number on the card. If you do
not make a sale, you do not earn anything or incur any cost in that period. Suppose that your
card is a yellow 2, and you negotiate a sale price of $3.50. Then you would earn $3.50 - $2 =
$1.50. You would not be allowed to sell at a price below $2 with this card. If you mistakenly
agree to a price that is below your cost, then the trade will be invalidated when you come to the
front desk; your card will be returned, and you can resume negotiations.
Buyers: You can each buy a single unit of the commodity during a trading period. The number
on your card is the dollar value that you receive if you make a purchase. You will be required to
buy at a price that is no higher than the value on the card. Your earnings on the purchase are
calculated as the difference between the value number on the card and the price that you
negotiate. If you do not make a purchase, you do not earn anything in the period. Suppose that
your card is a red 9, and you negotiate a purchase price of $4. Then you would earn $9 - $4 =
$5. You would not be allowed to buy at a price above $9 with this card. If you mistakenly agree
to a price that is above your value; your card will be returned, and you can resume negotiations.
Recording Earnings: Some sellers with high costs and some buyers with low values may not be
able to negotiate a trade, but do not be discouraged, since new cards will be passed out at the
beginning of the next period. Remember that earnings are zero for any unit not bought or sold.
When the period ends, the instructor will collect cards for the units not traded, and you can
calculate your earnings while the instructor prepares for the next round. Your total earnings
equal the sum of earnings for units traded in all periods, and you can use the Earnings Record
Section to keep track of your earnings. Sellers use the left side of the Earnings Record Section,
and buyers use the right side.
Earnings Record:
Sellers Earnings
(sellers use this side)
________ ________ _________
(price) - (cost) = (earnings)
1st period
________ ________ _________
(price) - (cost) = (earnings)
________ ________ _________
2nd period
(value) - (price) = (earnings)
________ ________ _________
(price) - (cost) = (earnings)
3rd period
________ ________ _________
(value) - (price) = (earnings)
________ ________ _________
(price) - (cost) = (earnings)
4th period
________ ________ _________
(value) - (price) = (earnings)
________ ________ _________
(price) - (cost) = (earnings)
5th period
________ ________ _________
(value) - (price) = (earnings)
________ ________ _________
(price) - (cost) = (earnings)
6th period
________ ________ _________
(value) - (price) = (earnings)
Total earnings, for all periods:
$ __________
Buyers Earnings
(Buyers use this side)
________ ________ _________
(value) - (price) = (earnings)
Total earnings, for all periods:
$ ___________
Analysis:
1. Use the following spaces to enter the sequence of prices made by traders
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5
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Period 1
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Period 2
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Period 3
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Period 4
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Period 5
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Period 6
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Ave.
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2. Write down the buyers and sellers card numbers for all periods.
1
2
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Periods 1,2
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Periods 3,4
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Periods 5,6
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3. Use the information provided in part 2 to draw the supply and demand curves relevant to
periods 1 and 2 of this simulated market. Label each curve. Note, a single supply and a single
demand curve apply to both period 1 and 2. Hint: A demand curve is the maximum number of
people that will buy a product at or below a particular price. A supply curve is the maximum
number of people that will sell a product at or above a particular price.
Price
Quantity
4. How well does the economic model shown in the graph above, predict the actual prices and
quantities from the simulated market?
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5. Use the information provided in part 2 to draw the supply and demand curves relevant to
periods 3 and 4 of this simulated market. Label each curve.
Price
Quantity
6. How well does the economic model shown in the graph above, predict the actual prices and
quantities from the simulated market?
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7. How is the graph in part 5 different from the graph in part 3? That is, has there been a shift in
supply and demand or both? If there has been a shift in supply or demand, describe the predicted
and actual changes in equilibrium price and quantity.
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8. Use the information provided in part 2 to draw the supply and demand curves relevant to
periods 5 and 6 of this simulated market. Label each curve.
Price
Quantity
9. How well does the economic model shown in the graph above, predict the actual prices and
quantities from the simulated market? Hint: What effect does a price ceiling below equilibrium
have on the market? Draw the price ceiling on the graph above.
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