Using the Book to Supplement Intermediate Courses
The book works well as a supplement to an intermediate course in
economic theory. Below are some suggested chapters. (See the
annotated table of contents for additional
descriptions of the experiments.)
Part I: Competitive Markets
- Experiment 1: Supply and Demand
- This is a good way to
begin the class and get the students thinking about how markets work.
It teaches students to draw and understand step-function demand and
supply curves, and it gives them useful practice for later, more
- Experiment 2: Shifting Supply and Demand
- The experiment and lab report can easily be skipped for
an intermediate class, although
assigning the discussion and homework sections may be a good idea.
Part II: Market Intervention and Public Policy
These three experiments are easy to do and fun for
the students. You may want to pick one to accompany the appropriate
- Experiment 3: Sales Taxes
- Finally, they will figure out those shifts! Students get to
explore the implications of putting a tax on the buyers versus the
sellers. Skeptics are finally convinced of the equivalence of a tax
collected from demanders to a tax collected from suppliers. Students
also learn first-hand the meaning of "excess burden" of taxation.
- Experiment 4: Prohibition
- Students seem to really enjoy this experiment, perhaps because of the
topic. Fundamentally, it is a nice application of some basic
competitive equilibrium theory.
- Experiment 5: Minimum Wages
- In addition to learning about the
effects of market controls like price ceilings and floors, students learn
to define and measure voluntary and involuntary unemployment.
Part III: Imperfect Markets
- Experiment 6: Externalities
- This experiment has been
very successful in intermediate classes. The effect of externalities
is brought home in a dramatic (and frustratingly real) way to most students.
One session applies a Pigovian tax whose revenue is returned in equal
shares to all participants. The fact that a tax increases rather than
decreases total profits is a nice complement to the lesson on the
excess burden of a sales tax when there is no externality. The final
session has two simultaneous markets, one for pollution permits, which
are present in fixed supply, and one for pollution-producing goods.
- Experiment 7: Monopolies and Cartels
- Students learn about monopoly pricing, price discrimination,
and how cartels can break down. Students particularly enjoy watching
the cartels break apart, and this can lead to lively discussions of
free riding behavior.
Part IV: Firms and Technology
- Experiment 8: Entry and Exit
- This experiment has a two-stage game in which there is
an "entry stage" and "market stage." In the entry stage, firms
sequentially and publicly announce their intentions to enter or not
enter a local restaurant industry. Firms who enter must pay a fixed
cost regardless of the number of meals they sell. Each has constant
marginal cost and a fixed capacity. In the market stage, firms sell
meals to consumers. If the number of entrants is "too
small" there will be profits, attracting more entrants in the next
round. If the number of entrants is "too large" there are losses, and
in later rounds there are likely to be fewer entrants.
- Experiment 9: Measuring Productivity
- More suitable for principles courses.
- Experiment 10: Comparative Advantage
- Probably more suitable for principles courses.
Part IV: Information, Auctions, and Bargaining
- Experiment 11: Adverse Selection
- This experiment is based on George Akerlof's "Lemons" model.
It works very well to bring the ideas of asymmetric information, separating
equilibrium, pooling equilibrium, and self-confirming beliefs to life
for intermediate economics students.
- Experiment 12: Auctions
- Auction theory is a lovely
intermediate topic. The experiment will get you started in the right
- Experiment 13: Bargaining
- A good way to begin discussions of game theory. You can do
bargaining, and then add other interesting games (for example,
centipede games, etc.).
Copyright (c) 1996, Theodore Bergstrom and John H. Miller, All Rights Reserved