Trading in the Pit Market

Holt, Charles A. "Classroom Games: Trading in the Pit Market." Journal of Economic Perspective. 10 (Winter 1996) 193-203.

The concepts of supply and demand are fundamental in understanding economic thought. This exercise provides students hands-on experience with markets. The only materials required are a deck of playing cards with all the face cards removed and a sheet of paper for each student. First, the instructor divides a class of 10 to 30 students into two groups (buyers and sellers). Members of the seller group are each issued one black card (either spades or clubs) that rang in value from 2 to 8. Members of the buyer group are given one red card (hearts or diamonds) with a value of 4 to 10. Students are then instructed to move to a trading area in the middle of the room, making sure that the value of their card remains a secret. Trade negotiations may then begin. The only rule is that sellers may not make a trade for a value under their production cost (the number on their card) and buyers may not make a transaction for a value greater then they are willing to pay (the number on their card). The difference between the price agreed upon and value on a student’s card is profit (i.e. a buyer with a red 10 makes $5 when she buys at price of 5). Several rounds of trading can be conducted with students recording profits for each round. For an extra incentive a prize (a ballpoint pen, candy bar, etc.) can be given to the person with the most profit at the end of the exercise. A government tax could even be imposed on either the buyers or sellers during one or more of the rounds (a seller with a black 2 would have sell at a price of $4 or more if a $2 tax were levied). This active learning exercise is beneficial to the introductory economics course or an intermediate micro class.