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Using Experiments and Activities in the Principles Class

This paper was presented at the 2004 ASSA Meetings San Diego, CA. The author has kindly agreed for it to be posted on our Web site. Examples of Eaton's active learning exercises are included in an appendix.

For the last two and a half years I have been slowly changing my approach to the principles classroom. Part of the change is philosophical, what do I want a student to know when they walk out of the final exam? Given that many of my students will not pursue economics beyond the requirements of a business degree, what concepts and principles do I want them to know? Which is more important: that they are able to calculate the tax shares in a tax incidence problem, or that they know that the least elastic side of the market will bear the burden?

The second part of the change is methodological. I had for the most part been a "chalk and talk" teacher. I have been making a conscious movement towards a more active, visual presentation of some material. This is not to say that I have given up lecturing, that is far from the case. It is to say that I have decided to approach economics more as a physical science, where lab work illustrates and emphasizes points made in the lecture time.

In general I have found several positive results from this change. First, students seem to remember concepts reinforced with an active learning activity. I have found this particularly true for some more abstract concepts, such as consumer surplus and tax incidence. Students seem less likely to believe, after an activity, that a supplier can simply pass along the complete amount of a tax on their product to consumers.

Second, an activity provides a very nice change of pace. As with anything, the constant use of activities would become trite, but well timed, well placed activities can provide a nice spark to class, and make the classroom a more enjoyable place for both students and the professor.

The next section will illustrate some of the methods that I use in active learning. Following that I will lay out the framework for active learning that I try to use. A brief guide to resources follows and recommendations close the paper.

I. Framework and Methods

My conceptual framework for active learning is two-fold. First, for some learners more concrete or visual examples make for an easier transition to the abstract concepts with which economics dwells. This is often accomplished through the use of short, visual examples such as the following:

  • The inefficiency of Christmas(note 1): Early in the January term I ask students to list gifts received for Christmas, the amount they think was paid for those gifts, and the amount of money they would accept for those gifts. I usually bring along a example of an "inefficient" gift. It is easy to see that $20 spent on a multi-use emergency light, which the recipient values at $5, is a waste of $15.
  • The cookie and milk auction: This shows the benefits of trade, as well as introduces the idea of efficient allocation. Typically I will bring a bag of chocolate chip cookies and a carton of milk and ask how I should allocate the goods to the class. After listening to suggestions (most hungry, free-for-all, lottery) we discuss why these may not lead to an efficient allocation. We then perform an auction. It is easy to see at the end of the auction that no secondary trade is possible (as would be possible with some other outcome). If the bids are not high enough I reserve the right to not sell, thus illustrating that only mutually beneficial trades will be undertaken.
  • Rubber bands and elasticity: I have found that elasticity is a difficult concept for many students. A large, hard to stretch rubber band, and a small, easy to stretch, rubber band provide a nice visual. A small amount of force (a change in price) leads to a large stretch of the rubber band (quantity adjustment).

I have noticed in using these examples that many students associate the concepts by the examples, sometimes more than by the text definitions. This is a weakness if the students are going on to become economics majors, or if you rely heavily on test bank questions, but since many of our students are not moving going to become economics majors, providing a vivid example may set concepts in their mind more firmly than textbook definitions.

My second rationale is borrowed from the physical sciences. In many physical science classes lectures are augmented by a lab session in which the student is able to discover the truth of the lecture. I will devote five to eight fifty minute class sessions to lab type exercises with the goal of allowing students to discover economics principles for themselves. In this section I will describe five lab type exercises that I tend to use. What I look for in a lab exercise is not only something that makes the point, but something which can branch out as well.

1. Trade

One of the more emotional issues in my principles classes is that of international trade. (This is due, in part, to the recent closing a large manufacturing facility in our city). Intellectually students are able to see that they benefit from trade in their own life. (None, for instance, will admit to growing all their own food or making all their own clothes). Making the extension to international trade is more difficult. Thus, I do the following.

Each student is given a sheet with their time requirements for producing two goods. I ask them to use that information, and an allotment of time, to graph their production possibilities curve as well as determine their opportunity cost of each good. (This then reinforces the concept of production possibilities, as well as that of opportunity cost). This is to be done before class.

In the next class session students are grouped in pairs and given the opportunity to work out mutually beneficial trades. They are then asked to illustrate their new, post-trade consumption point, which will lie outside of their ppf. Some groups typically need help with this exercise, and I roam the room to offer assistance.

This exercise can then branch out in multiple ways. First, students may be asked to draw the ppf they would face if the two countries merged. This forces them again to think about opportunity costs, as well as providing a nice opportunity to discuss the bowed out shape of the ppf.

Two other extensions deal with trade policy. The instructor can impose either a trade restriction (no more than x units of a particular good may be traded) or a tariff into the trade relationship. Students will typically see that while trade will be restricted, both individuals are still better off, though not as well off as under free trade.

A final discussion topic that arises in this exercise relates to the distribution of the gains from trade. While students see that both countries benefit from trade, they also recognize, some from personal experience, that not every individual benefits. This provides opportunity to reinforce concepts from the circular flow model, as well as discussions of the compensation principle of pareto efficiency.

2. Building a Market

In this exercise students are assigned the role of suppliers or demanders according to instructor determined supply and demand curves. (Often simple step functions work well). Demanders are assigned buyer values, sellers are assigned seller costs. Several rounds of trading ensue, and often I post the trades in real time on an excel spreadsheet. After a pre-determined time, usually two to three minutes, a round of trading ends. Very quickly the market will converge with the average trade price converging on the predicted equilibrium price.

Several concepts are introduced. First, students easily recognize that if they buy the good for less than their buyer value they receive a "profit" of the difference. Sellers also earn "profit" based on the difference between price and seller cost. This provides an intuitive way of introducing the concepts of producer and consumer surplus, concepts which students often have trouble with, particularly on the consumer side.

Providing students with the number of demanders at each buyer value and the number of suppliers at each seller cost enables the students to graph supply and demand functions as well as predict the equilibrium price and number of trades. Step functions work well as they require the students to reason through the supply and demand curves, and thus reinforce the idea of supply and demand.

Extensions are numerous. The most obvious is to change buyer values or seller costs, that is, to shift supply or demand. This provides an opportunity to re-illustrate the distinction between a move along a curve and a shift in a curve. This is another area where students have difficulty.

It is also quite simple to extend this exercise to price controls. A ceiling or floor will quickly cause the predicted effects in the market. With some classes, it will also generate offers of side payments, etc. to avoid the market restrictions.

Placing a tax on the good is another nice extension. Students quickly recognize that some of them will be taxed out of the market. They also easily recognize that while the prices will change, the tax burden will be shared. This too is a concept which is often difficult for students to recognize.

After the assignment I post the excel spreadsheets with session data to a class web site. Students are then able to determine if the market behaved as the model suggests, and can also look at welfare changes through changes in the size and allocation of buyer and seller profits.

3. Production, cost and input demand

I use this exercise to generate production and cost data for the class instead of using the tables of information contained in textbooks. In this exercise the class is divided into groups (usually five to eight students) and asked to produce folded, stapled, paper. Capital is fixed at one stapler and one pair of scissors per group. Labor is provided by the group members. The other required input is standard sized sheets of paper.

The exercise asks students to cut paper in half, fold each half into thirds, and affix three staples. We begin with one laborer per group and then add additional units of labor in each round. Students record the input quantity and the output produced in one minute. Very quickly students recognize, and define the reasons for, diminishing marginal returns. After each round I introduce a new production or cost definition based on a representative group's results.

Costs are introduced in the following way. There is a fixed charge of $5 for capital in each round. Labor costs $3 per unit. Output sells for $2 per unit. In the next semester I plan to introduce a cost for paper as well as students quickly recognize that multiple sheets of paper can be cut very quickly.

This exercise extends easily into a discussion of input demands. Students are asked, for homework, to determine a rule to be used in hiring labor. This exercise also serves as a nice way to introduce a discussion on when a firm should exit a market.

Competitiveness between groups enhances this exercise. Extra credit on a previous assignment is awarded to the group that earns the largest profit.

4. Entry (Note 2)

That free entry leads to zero economic profits is one of the more important market structure results introduced at the principles level. I find that students have difficulty with the concept of zero economic profits, and are skeptical that markets adjust in this way. I use an exercise taken from the Journal of Economic Education which quickly illustrates this point.

In this exercise each corner of the room is designated as a market. Students are asked to choose a market and profits are announced based on predetermined demand schedules. The demand schedules are such that a zero profit equilibrium is reached. Students are free to move in each round, and quickly (within four to six rounds) realize that more people in a market lead to lower profits. In some classes students begin to suggest that entry barriers would help assure profits. While no physical entry barriers are introduced, there is often some vocal peer pressure to not come in to a market which is currently earning profits. This activity also opens discussions related to why students change, or don't change, markets. It should be noted that a large number of non-participants (i.e. those who choose a market and stay there as opposed to actively participating) don't affect the outcome of this market.

A variant of this exercise adds a buy-out option where students earn a certain amount of profits to opt out. The equilibrium where all participants are earning that level of profits is also quickly reached.

5. Oligopoly Collusion(Note 3)

In this game students choose to raise either a green sheet of paper or a blue sheet of paper. The payoff, which is a prisoners' dilemma, is determined by the student's action and the majority choice of the class. When done quickly, and with no talking, the equivalent of a "cheat-cheat" strategy develops and all payoffs are very low.

A second play of the game introduces the opportunity for students to collude on a strategy. Typically students will develop a rather complicated, and easy to cheat on, scheme and a simple, harder to cheat on scheme. The size of the class does matter as smaller classes make collusion easier. The instructor can facilitate or interfere with collusion. (I will occasionally have students close their eyes when raising their paper to make cheating easier). How the room is arranged also affects the outcome as students in the rear corners of traditional rows tend to cheat on an agreement with little observation from other students, whereas students seated in a semi-circle can easily observe the behavior of the others in the class.

This exercise nicely illustrates the problems facing an oligopoly, and often the students are able to discern from the exercise what makes collusion easier. This exercise then nicely serves as a means of "self-teaching," where the student discovers on his or her own the principles I am trying to teach.

II. Elements of Active Learning

I try to use four key elements in active learning. Not all elements are incorporated in each activity, however it is my belief that the more elements incorporated, the more beneficial the exercise.

First is pre-class work. As in the example of trade above, pre-class work allows the student to come prepared for the activity in class. This can be as simple as a homework question such as "What's the best way to distribute scarce resources," to actual work as described in the trade section.

Second is the activity or exercise itself. While some of these activities may take an entire class period, many, such as the entry exercise or those mentioned in the first part of the paper, can easily be completed in twenty minutes.

Third is a post-exercise evaluation. For the market building I post the spreadsheets with the trading session data to a class web site and ask students to graph the supply and demand curves, predict the equilibrium and evaluate the results with the predictions of the supply/demand model. In exercises which involve strategy (entry, oligopoly) I usually ask people to think through the strategic choices that they made.

Finally, and this is a key, the instructor needs to reinforce the exercise throughout the semester. I use the paper production function as the primary teaching tool for production, cost and input demand. In fact, I often supplant the textbook material with the results of these exercises. The results of the market building exercises, the oligopoly collusion and others are quite easy to reference at later times. (For instance, when reintroducing consumer surplus I refer to the buyer profits earned in the class exercise).

III. Resources

There are a growing number of sources for active learning and exercises, and as such the instructor need not be creative in this area to begin exploring active elements of teaching. In fact, a good bit of what I use in class has been adapted from other materials.

Perhaps the easiest place to begin is with the supplemental material available for many text books. Mankiw provides some activities as part of the instructor's manual. The text by John Taylor has a very nice supplement with class exercises and activities. Ted Bergstrom and John Miller have developed an entire text which takes a lab type approach to teaching economics.

Journals are also a good source of material. The Journal of Economic Education regularly includes classroom activities. The Southern Economic Journal, as well as the Journal of Economic Perspectives have also published experiments to be used in class.

Charlie Holt at the University of Virginia has a very useful web site full of computer based economic activities.

IV. Recommendations

I have spent the last two and one half academic years trying to integrate active learning into my classroom. The following are some recommendations for those who wish to start to incorporate more active learning in their classrooms based on what I have learned during that time.

First, start slowly. A more casual way of saying this is that it is ok to wade in the water before diving in. In my first semester using active learning I did three activities, auctioning cookies, the oligopoly exercise, and the elasticity and rubber band exercise. I have expanded this each following semester. In the spring semester of 2004 my hope is to use some type of active approach, not just "visual aids" in every fourth or fifth class.

Second, know your classes. I am often amazed how different two separate sections of the same class can be. Some classes respond very positively to active learning and in class experiments. Other classes do not. I find a lot of value in active approaches, but on occasion my class does not. Some battles you can win because you're the instructor, some aren't worth fighting. There's nothing worse than having an auction with no bidders because the students don't want to be active.

Third, provide incentives. While many classes compete for the sake of competition, incentives help to generate optimal behavior. For auction type of activities I actually auction off items and collect money from the winner. (Some students are surprised when I actually ask for money and refuse to complete the transaction without payment). For other activities I offer extra credit.

In my classes, students have assignments due each day. The point of these assignments is to get students to begin thinking about the class material for that day. The assignments are graded on a good faith effort basis, and are worth 15% of their grade. (I often use these assignments for pre-exercise and post-exercise work as well). For some activities I offer a make up class assignment credit.

My students also have to turn in four writing assignments relating class material to articles found in the Wall St. Journal. Cumulatively these are worth 15% of their grade. I offer the winners of the paper production function 10 extra points on a writing assignment. For the oligopoly collusion exercise, I offer to replace a non-zero writing assignment grade with their total points for the exercise. With the payoff table that I use, students can earn up to 240 points (though the average is usually around 115 or so) which provides enough incentive for good play.

Fourth, keep learning styles in mind. (Note 4) Active learning helps those who learn by doing. Don't forget however that others in your class learn by listening. While many students like the break from the lecture format, a few would prefer to not be involved. The upside of many exercises, such as the entry exercise, is that those who only minimally participate don't have an impact on the outcome of the exercise.

Fifth, anything can get old. Just as the "chalk and talk" has become passé, so can other teaching approaches. Active learning for the sake of active learning, or for the sake of doing something different, is not a useful strategy. The reaction, "Oh, we're doing this again" is not what you're after in an active classroom. This clearly ties in with recommendation two, know your classes. You may in fact find that you need to modify your activity schedule based on the personality of the class.

Sixth, try to use activities that reinforce more than one concept. As you can see in the activities above, several of them make reference to numerous concepts. Time in class is scarce, and thus the more concepts reinforced by an activity, the greater the surplus.

V. Conclusions

I have found that adding activities, experiments and demonstrations has been a tremendous benefit in teaching. Most students who have commented about these activities on evaluations have been positive, with the rest suggesting that they would rather just listen to a lecture. Participation is often very good, particularly as the students become more comfortable in the class. The activities provide a nice change of pace and give students an opportunity to feel more a part of the learning exercise.

Attached are samples of exercise sheets that I have used in past classes.


1. This exercise adapted from Joel Waldfogel, "The Deadweight Loss of Christmas." American Economic Review, December 1993, pp. 1328-1336. JSTOR 2117564

2. See Rod Garratt, "A Free Entry and Exit Experiment." Journal of Economic Education, Summer 2000, pp. 237-243.

3. Adapted from Greg Delemeester and John Nereal, Classroom Experiments: A User's Guide, supplement to John Taylor, Economics, 1995.

4. See Mark A. Benvenuto, "In an Age of Interactive Learning, Some Students Want the Same Old Song and Dance." Chronicle of Higher Education, June 4, 1999, p. B9.

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