Teaching Economics Interactively: A Cannibals Dinner Party

1
Teaching Economics Interactively A Cannibals
Dinner Party

• Hillsdale College Free Market Forum
• Ted Bergstrom, UCSB

2
What I tell my Principles Students

• Taking this course is like being invited to
  dinner at a cannibals house.
• You may be a diner, you may be dinner
• And you probably will be both

3
A Cannibals Feast

• Unlike astronomers, physicists, geologists,
• botanists, or even biologists, we have direct
  experience with being the object we study.
• Economics is the study of mankind in the
  ordinary business of life.---Alfred Marshall
• The classroom is a natural laboratory for study
  of interacting human decisionsas well as a place
  to learn economics.

4
Two Interactive Devices

• Classroom Market Experiments in TA Sections.
• Radio Frequency Clickers in large lectures.
• Principles class has 500 students. Sections
  have 35-50.

5
Classroom Experiments

• Each week students participate in a market
  experiment in the TA section.
• Experiment illustrates economic principles
  studied in that week.
• Each students trades and profits are recorded.
  (Profits count slightly toward grade.)
• Data from experiment is posted on web.
• Homework assignment Process data from experiment
  and compare experimental results with theoretical
  predictions.

6
Classroom lectures

• In large lecture we discuss the theory related to
  the experiment.
• We see how well the theory predicts experimental
  results.
• Important lesson Distinguish Predictions from
  observations.
• We look at real world natural experiments
  that illustrate the theory.

7
Pedagogical objectives

• Persuade students that economics is not dogma
  to memorize, but tools for thinking about what
  goes on in the world.
• Teach them the usefulness of simple theories and
  the difference between theory and observation.

8
Experimental topics

• Demand and Supply (and shifts in these)
• Sales tax incidence
• Price Floors and Ceilings
• Externalities
• Equilibrium with entry and exit of firms
• Monopoly and Oligopoly
• Comparative Advantage
• Adverse Selection and Lemons

9
Supply and Demand Experiments

• Each student assigned a role as buyer or seller.
• Buyers can buy at most one unit, sellers can sell
  at most one unit.
• Each buyer is assigned a Buyer Value and each
  seller a Seller Cost. Students know only their
  own Value or Cost. Instructor knows
  distribution.
• Students trade in an open trading pit. Seek
  most profitable deal they can find. Do not have
  to trade if they cannot make profit.

10
Theoretical Prediction

• After experiment is over, students are told the
  distribution of Buyer Values and Seller Costs.
• They are asked to construct a supply curve and a
  demand curve and to find the competitive
  equilibrium price.
• In homework, they compare the prices and
  quantities in the experimental outcome to the
  predictions of competitive theory.

11
Radio Frequency Clickers

• Each student has a clicker.
• Questions are posted on screen at front of
  lecture hall.
• Students respond with a letter or number.
• Software records individual responses.

12
Clicker Applications

• Surveys of characteristics or opinions
• Develop demand and supply curves to work with as
  homework exercises
• Questions testing understanding of material
• Inform me of what students know
• Inform students of what I want them to know
• Inform students of what the others know.
• Classroom games and markets

13
Survey Questions
14
Have you ever worked in a restaurant?

• Yes
• No

15
Do you have a job during the school year?

• No.
• Yes, less than 10 hours per week.
• Yes, between 10 and 20 hours per week.
• Yes, 20 or more hours per week.

16
Clicker Check-in Survey Do you own an Ipod?

• Yes
• No

Asked in Jan, 2006
Asked again in Jan, 2007
75 yes, 25 no
Next class Iphones
17
The National Market
18
Estimating a Demand Function

• Question
• What is the most that would you be willing to pay
  for an IPOD if you couldnt get it any cheaper
  than that?

19
Willingness to pay for an IPOD

20
Homework assignment

• Students were given an Excel spreadsheet with the
  distribution of willingnesses to pay.
• They were told that I would ask the following
  clicker questions in class next time.
• What price maximizes revenue?
• If marginal cost is 50, what price maximizes
  profit?
• If marginal cost is 100, what price maximizes
  profit?

21
Which price maximizes revenue?

• 450
• 350
• 300
• 250
• 200
• 150

22
Total Revenue Maximization
23
Price and Revenue
24
Total Revenue and quantity
25
If Marginal cost is 50, which price maximizes
Apples profits on IPod?

• 350
• 300
• 250
• 200
• 150

26
Profit with 50 Marginal Cost per unit
27
Profit with 100 Marginal Cost per unit
28
Profit with 50 Marginal CostWholesale price
80 of retail
29
Demand Curve for Ipods
30
Elasticity along demand curve
31
(No Transcript)
32
What is the highest tuition at which you would
have still chosen UCSB? Tuition and fees at
UCSB is about 7600 for residents and 25000 for
nonresidents.

• 40,000 or more
• 30,000
• 25,000
• 20,000
• 15,000
• 10,000
• 8,000
• 5,000
• Less than 5,000

33
Labor Supply Question

• What is the lowest hourly wage at which you would
  take a 10 hour per week part time job during the
  school year?

34

35
Questions on Course Material
36
The effect on price of a sales tax collected
from buyers is the same as the effect of

• An upward shift of the demand curve.
• A downward shift of the demand curve .
• An upward shift of the supply curve.
• A downward shift of the supply curve.

37
If the supply curve is horizontal, a 10
increase in the sales tax will cause the
equilibrium after tax price to rise by

• By 10.
• By less than 10.
• By more than 10.

38
The demand curve has slope 1 and the supply
curve has slope 2. A sales tax causes the after
tax price to buyers to rise by 10. The after
tax price received by sellers must have fallen

• By 10
• By 5
• By 20
• By 0

39
Looking pretty good

• Maybe they are learning something.
• Lets try another one.

40
A profit maximizing firm will choose the amount
of labor that maximizes the marginal value
product of labor.

• True
• False

41

Example Wage is 25

• To maximize Marginal Value Product hire 1
• To maximize profits, hire 3.
• What does Marginal value product rule say?
• Hire additional labor so long as marginal value
  product exceeds the wage.

42
Worse than a roomful of monkeys?

• If you want to deflate your opinion of your
  teaching prowess, ask your students a variant of
  this question.
• Monopolists seek to maximize their marginal
  revenue or
• Competitive firms seek to maximize the
  difference between price and marginal cost.
• Students are not used to careful use of language.
  

43
Classroom Games
44
A commuting game.

• You have two ways to commute from home to work.
• The short way by narrow road
• The long way by freeway
• Commute time by freeway is always 30 minutes.
• Commute time by narrow road depends on how many
  others take narrow road.

45
Your choice

• If N people go short way, it takes 15N/10
  minutes to make the trip.
• Freeway always takes 30 minutes
• You hate commuting and want to minimize
• travel time.
• Choose your route using Clickers. Well do this
  repeatedly, simulating commuter days.

46
Your score for the day.

• You will get more points, the less your total
  time spent commuting.
• You must choose one way or the other. If you
  dont click either option, you will be assessed 1
  hours commuting time for that day.

47
Equilibrium Analysis
48
This time I will travel by the

• Short way
• Freeway

49
Traffic Cycles?
50
Commuting time time series
51
The wisdom of Crowds?

• We can ask a question repeatedly, displaying the
  histogram of answers after each set of responses.
• How useful is group consensus about facts?

52
I think the distance (as the crow flies) from
Paris, France to Vienna, Austria is in the range
of

• 2000-2500 miles
• 1200-2000 miles
• 900-1200 miles
• 700-900 miles
• 600-700 miles
• 500-600 miles
• 400-500 miles
• 300-400 miles
• 200-300 miles

53
The distance (as the crow flies) from Paris,
France to Vienna, Austria is in the range of

• 2000-2500 miles
• 1200-2000 miles
• 900-1200 miles
• 700-900 miles
• 600-700 miles
• 500-600 miles
• 400-500 miles
• 300-400 miles
• 200-300 miles

54
The distance (as the crow flies) from Paris,
France to Vienna, Austria is in the range of

• 2000-2500 miles
• 1200-2000 miles
• 900-1200 miles
• 700-900 miles
• 600-700 miles
• 500-600 miles
• 400-500 miles
• 300-400 miles
• 200-300 miles

55
What is it exactly? 642 miles