A classroom market experiment: Data and reflections

Abstract

In this article, the authors analyze data accumulated over 10+ years of teaching market interaction using a simple classroom experiment. The experiment is designed to teach first-year undergraduate students the basics of supply and demand and market efficiency. In total, they analyze data from 85 teaching sessions and 243 individual markets. They find that traded prices typically (90% of the time) move in accordance with market equilibrium comparative statics. They also find that average traded prices are rarely (5% of the time) consistent with market equilibrium but typically (70% of the time) “close” to the equilibrium. The traded quantity is often (60% of the time) more than equilibrium, which results in a loss of efficiency. The law of one price is strongly rejected.

Keywords:

• Classroom experiment
• market interaction
• pareto efficiency
• supply and demand

JEL codes:

• A22; D40; D50

Acknowledgments

Both authors contributed equally to this work. They thank an anonymous referee and the journal’s associate editor for their contributions to improving the article.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Appendix availability

The online appendix is available at https://figshare.com/articles/online_resource/‌Online_Appendix_for_A_Classroom_Market_Experiment_Data_and_Reflections_/22100369

Data availability statement

The data analyzed in this article are available at https://figshare.com/articles/‌dataset/Data_file_for_paper_A_Classroom_Market_Experiment_Data_and_Reflections_/22104740

Notes

1 https://figshare.com/articles/online_resource/Online_Appendix_for_A_Classroom_Market_‌Experiment_Data_and_Reflections_/22100369.

2 If b₄₀ = s_10, then the equilibrium price is undetermined. Hence, this outcome is best avoided in the experiment.

3 The only exception was that if students arrived after round 1 had started, and were thus added to round 2. This was done in a way that did not influence the market equilibrium price and quantity.

4 Not plotted on this figure are one trade at price 1, one trade at price 41, two trades at price 45, and three trades at price 50.

5 If there are s₁₀ sellers with a value of 10 and b₄₀ buyers with a value of 40, and s₁₀ > b_40, then the probability that the market equilibrium is 20 is given by ${\sum }_{x=1}^{{\mathrm{s}}_{10}}{\sum }_{y=0}^{\mathrm{\text{min}}(x-1,{\mathrm{b}}_{40})}\left(\begin{array}{c}{\mathrm{s}}_{10}\\ x\end{array}\right)\left(\begin{array}{c}{\mathrm{b}}_{40}\\ y\end{array}\right){(1-p)}^{x+y}{p}^{{\mathrm{s}}_{10}+{\mathrm{b}}_{40}-x-y}$.