Topic: Market Equilibrium (Double-auction experiment) Objectives: To let students experience how demand and supply model helps explain real-world markets, I e. how actual prices converge to the equilibrium values predicted by theories

Topic: Market Equilibrium (Double-auction experiment)

Objectives: - To let students experience how demand and supply model helps explain real-world markets, i.e. how actual prices converge to the equilibrium values predicted by theories.

- To let students explore different economic concepts involved in a simulated market situation

Time: 60 minutes

Target : S4-6 students

Activity	Details	Teacher’s role / points to note	Time
Introduction	The teacher announces that “It is a sunny Saturday morning at the Farmers’ Apple Market. You and your classmates have come to the market to buy and sell apples. The apples sold are homogeneous. Your objective is to “make as much gain as possible.” Then distribute to each student a personal information sheet indicating whether he/she is a supplier or a demander in the market. Tell them that on the information sheet, they will also find seller cost or buyer value for a bushel of apples. Then read the instructions (see appendix 1) to students.	The teacher should make sure that students understand the instructions, or they will feel frustrated and make random decisions that muddy the results during the experiment.	10 min
Warm-up exercise (optional)	The teacher checks students’ understanding by having them answer some warm-up questions (see appendix 2).		5 min
1^st round	The market manager (selected by the teacher) declares Round 1 of trading to be open. As transactions take place and are reported to the market manager, he should put the sales prices, buyers’ values and sellers’ costs on a spreadsheet.	The teacher should watch for and help confused students, but refrain from telling students what actions to take, and intervening to affect the outcome; otherwise students will not recognize the power of markets to find the equilibrium price without intervention. The teacher should also make sure the market manager understands his job.	5 min
2^nd round	Ditto.	In the 2^nd and 3^rd round, students’ roles and their values/costs remain the same, but the market information they have is different: As they have more and more information shown on the spreadsheet, there should be less price dispersion in later rounds, thus forcing the prices to converge to “equilibrium”.	5 min
3^rd round	Ditto. At the end of each round, the teacher asks students to record the information about the transactions of each round onto a record form (see appendix 3). Such information will help students to do analysis during the debriefing of the experiment.		5 min
Debriefing	After the experiment, the teacher asks students to form groups of 2 to 4, and draw the demand and supply curve for the market based on buyers’ value and sellers’ cost on the debriefing handout (see appendix 4). After drawing these curves, they will be able to find the equilibrium prices and quantities as predicted by supply and demand theory. Then ask students to compare the predictions of supply and demand theory with the actual outcome (i.e. mean price and number of transactions in each round of a session), as an evaluation of the supply and demand theory. Teachers can also use this experiment to discuss with students other economic concepts like law of demand and law of supply, consumer surplus and producer surplus, efficiency, etc. (see appendix 5)	In this session, the teacher should give students the chance to wrestle with the results and encourage them to attempt interpreting the results themselves, instead of providing a fast follow-up analysis himself.	25 min
Conclusion	The teacher points out to students the aim of the experiment: to see whether supply and demand theory does a good job of predicting the outcomes of our experiments.	Normally, the prices and number of transactions will converge to the equilibrium level as predicted by the supply and demand theory. However, if the outcomes turn out otherwise, the teacher should figure out the reasons together with students (e.g. Is it because some students don’t understand the trading rules and trade at a loss? Or is it because students trade with the same person throughout the game and haven’t exploited all opportunities yet?)	5 min