Download In The Chips Guide
Understanding how markets work and the role of prices within markets is an important key to being able to explain and predict economic behavior. In true markets, prices are determined by the interaction of buyers and sellers.
Equilibrium Price (or Market Clearing Price)
National Content Standards Addressed:
Standard 7: Markets
Markets exist when buyers and sellers interact. This interaction determines market price and thereby allocates scarce goods and services.
- A market exists whenever buyers and sellers exchange goods and services.
- Market prices are determined through the buying and selling decisions made by buyers and sellers.
- The market clearing or equilibrium price for a good or service is the one price at which quantity supplied equals quantity demanded.
Standard 8: The Price System
Prices send signals and provide incentives to buyers and sellers. When supply or demand changes, market prices adjust, affecting incentives.
- High prices for a good or service provide incentives for buyers to purchase less of that good or service and for producers to make or sell more of it.
- Lower prices for a good or service provide incentives for buyers to purchase more of that good or service and for producers to make or sell less of it
Standard 9: The Role of Competition
Competition among sellers lowers costs and prices, and encourages producers to produce more of what consumers are willing and able to buy. Competition among buyers increases prices and allocates goods and services to those people who are willing and able to pay the most for them.
- Competition takes place when there are many buyers and sellers of similar products.
- Competition among sellers results in lower costs and prices, higher product quality, and better customer service.
- Competition among buyers of a product results in higher product prices.
- The level of competition in a market is influenced by the number of buyers and sellers.
This lesson simulates a market for computer chips. Students, acting as buyers and sellers, will experience the competitive nature of markets. As a result, they will see how competition influences the price of goods and the decisions of buyers and sellers.
1-2 class periods
(See download link above. Contains all handouts, visuals, procedures, debriefing questions and answer guide.)
- Student buyer and seller cards (use 2 colors or use colored arm bands for sellers if buyer and seller cards are the same color)
- Student transaction sheet – 1 per student
- Overhead transparency of Student Worksheet
- Overhead transparency or handout of “How to Play In the Chips”
- Overhead transparency of Tally Sheet
Make 32 buyer and 32 seller cards according to the following distribution.
- Explain to students that they are going to take part in a market simulation. Read the handout, “How To Play In The Chips. ” Read aloud or have students read silently and then review the procedures and answer student questions.
- Designate one student (or a classroom aide) to oversee the distribution of the buyer and seller cards during the activity and another to record each transaction on the tally sheet. Buyer and Seller cards should be kept in separate piles and each pile should be shuffled between rounds. While the buyer and seller cards are different colors, placing the piles at opposite ends of the desk or table further minimizes the possibility of students taking cards from the wrong pile.
- Clear the center of the room and designate it as the marketplace.
- Divide the class into two equal groups. One group will be the sellers, the other the buyers. Explain that buyers will be buyers throughout the activity and that sellers will be sellers throughout the activity.
- Hand out individual score sheets on which participants can record their transactions. Review details of the score sheet if necessary. Make sure both buyers and sellers understand how to calculate “profit” on their score sheets. Emphasize that the sellers are responsible for reporting the selling price for each transaction.
- Explain that you will conduct a number of rounds of trading sessions of five minutes each. (You may want to do one practice round.) For tallying purposes ask students to make all transactions in ten cent increments.
- Encourage students to make as many deals as they can in the time permitted. Explain that it is permissible to take a loss in order to get a new transaction card. In order to encourage participation explain to students that if they make no transactions in a round they must count the amount on their card as a loss at the end of the round.
- After each trading round, allow students time to figure their net losses and gains — their “profit.”
- During non-trading time between rounds, direct students’ attention to the market record on the tally sheet. Remind them that one of the functions of markets is to convey information and indicate that the game tally may reveal things they would be interested in knowing – as buyers or sellers. out, for example, deals that were made at high prices and deals that were made at low prices, and the numbers of transactions made at various prices.
- After the final round have students calculate their total profit or loss for all rounds.
Once students have played In the Chips, it is easy to go back at a later time and play additional rounds to illustrate different market phenomena. It is best to play additional rounds at another time rather than trying to show all the possibilities in one activity. As students’ understanding of markets develops, and as the semester of study progresses, returning to the game to play an additional round can be very effective. For example:
- Price ceiling: Tell students that you feel badly that not enough buyers made money because the price of computer chips was “too high.” Consequently, you are going to play another round, but as the teacher you are setting the maximum price at $3.75. (The sellers will quickly choose not to participate. The eventual result is far fewer transactions in the marketplace and fewer computer chips offered for sale.)
- Price floor: Tell students that the computer chip industry is so important that you want to make sure that sellers make enough money to stay in business so you are going to set a minimum price of $4.90 for the next round. (This time buyers will choose not to participate, so sellers will not be able to sell their high priced chips.)
- Limited competition: Conduct a round with only 2 sellers and everyone else as buyers. Put the sellers in opposite comers of the room and give them each half of the seller cards. Explain that sellers must still draw a new card from the face down stack for each transaction they choose to make. Discuss whether or not the sellers were still in competition with each other and how much that influenced the market price.(The market works surprisingly well with this mix of buyers and sellers. There will be fewer transactions and the price will rise some, but not in the dramatic fashion that students might predict. Markets can be quite competitive with unequal numbers of buyers and sellers.)
- Price gouging: See the video demonstration and activity guide for “The Market for Thingamajigs,” in the FTE’s Economics of Disasters lessons.
This lesson has been modified, for use in Foundation for Teaching Economics materials by Kathy Ratté and Kenneth Leonard, from The Big Apple published in In The Marketplace, 1978. Used with permission. Office of the Superintendent of Public Instruction, State of Washington.
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