Download Activity 3 Guide .doc file – including procedures, handouts, visuals, and teacher guide
Activity Demonstration Video:
- standard of living
This activity addresses parts of the following content standards in economics. Note that the lesson, in and of itself, is not sufficient to guarantee student proficiency in the identified standards.
Standard 7: Markets exist when buyers and sellers interact. This interaction determines market prices and thereby allocates scarce goods and services.
Standard 9: Institutions evolve in market economies to help individuals and groups accomplish their goals. . . . A different kind of institution, clearly defined and well enforced property rights, is essential to a market economy.
- The level of competition in a market is influenced by the number of buyers and sellers.
- The pursuit of self-interest in competitive markets generally leads to choices and behavior that also promote the national level of economic well-being.
- The level of competition in an industry is affected by the ease with which new producers can enter the industry and by consumers’ information about the availability, price, and quantity of substitute goods and services.
The friendly invitation, “the more, the merrier,” may not have originated to describe market competition, but it certainly applies. The happy outcome of open, competitive markets is increased supply at lower prices. In general, markets characterized by ease of entry and relatively large numbers of sellers whose products readily substitute for one another are more competitive than markets with significant barriers to entry, relatively few sellers, and/or unique products with few substitutes. Thus, opening markets to competition by removing barriers to entry also opens the door to improved well-being for the poor.
This student activity simulates a transition from a closed, controlled, relatively non-competitive market to one that is open and highly competitive. Students experience the reality that opening markets to entry and exit of sellers increases output and reduces prices in a process that makes possible higher standards of living for both buyers and sellers.
- 1 class period
Page numbers refer to the downloadable version of this activity. All handouts and visuals included in the download file linked above.
- several (6-8) boxes of regular-size, identical paper clips
- prototype paper clip bracelet made with 6 paper clips, fastened together chain style, connected into a circle
- large bag of small pieces of candy – as many as 10 per student
- half sheets of paper in 3 different colors (Ok to use scrap paper, if one side is blank.)
- Prepare approximately 4 sheets per student – approximately 3/4 color A, 3/16 color B, 1/16 color c. For example, for a class of 25 students prepare 72 sheets of color A, 20 sheets of color B, and 8 sheets of color C. Color A will become the 1 Classroom Buck notes, color B will be the 5 Classroom Buck notes, and color C will be the 10 Classroom Buck notes.
- 15 – 20 pieces of 1-Classroom Buck currency for bank and for sellers to use as change (See page 14 for master.)
- overhead transparency of 1, 5, and 10 “classroom bucks” (page 13)
- “Transaction Record” – 1 per student (pages 15-16)
- producer / seller role description – 8-10 copies (page 11, may be laminated for future use)
- Overhead transparencies:
- scenario (page 10)
- producer/seller role description (page 11)
- worker / buyer role description (page 12)
- currency samples (page 13)
- transaction record (page 15)
- market record (page 17)
- Room Set-Up: Arrange large furniture so that the room can be easily divided into a “buyer area” and a “seller area” at the beginning of the activity. (The size of these areas will change throughout the activity as students change their roles.) Leave an open space in the middle of the room for the market.
- “Hiring” an assistant: Using a teacher’s aide or student assistant to distribute materials during the activity is advantageous. The aide can distribute currency blanks and bracelet supplies while you are giving instructions and or conducting discussions after each round, resulting in less unstructured time for students.
- Put a large pile of candy on your desk and tell students that each person’s performance in the upcoming activity will determine how much candy he/she can buy at the end of the period. (If students ask the price of the candy, tell them it will be determined “by the market” or “at the end of the activity.”) Pose the following discussion questions and record students’ answers on the board, a flip chart, or overhead transparency. These “hypotheses” will be revisited in the debriefing discussion after the activity.
- Does market competition hurt the poor? (Divide the chart into 2 columns, headed “NO” and “YES.” Record student responses – reasons, explanations, examples – in the appropriate columns.)
- Which are better for the poor: open, highly competitive markets or relatively closed markets in which government controls the degree of competition? (Divide the chart into 2 columns, headed “OPEN” and “CLOSED.” Record student responses in the appropriate columns.)
- Display the “Scenario” handout on the overhead and read through the description so that students understand the conditions being simulated in the activity.
- Give producer/seller role descriptions to 2 students. (Add or subtract 1 producer/seller for class sizes above 30 or below about 20.) Move the 2 sellers to the “seller area” and move the rest of the students to the “buyer area.” Instruct students to leave an open area between.
- Display an overhead transparency or read aloud from the seller/producer handout so that all students understand the role of the 2 producers/sellers. Demonstrate how the bracelet is made and give a prototype to the 2 sellers to examine. (Do not hand out production materials yet.) Remind the producers/sellers that their goal in the activity is to get as many classroom bucks as they can.
- Explain that the rest of the students will be workers in the government’s new currency production facility. Display the overhead transparency and/or read aloud from the worker/buyer role description so that all students (including the 2 sellers) understand the role of the workers/buyers. Remind the workers/buyers that their goal in the activity is to get as many bracelets as they can.
- Mention, but don’t belabor, the importance of making currency carefully. Explain that as the banker, you will determine whether or not currency is acceptable. Make sure that sellers understand that they may ask you to determine whether currency is valid or “counterfeit.” If sellers accept faulty currency, they risk not being able to turn it in for candy at the end of the activity. This is simply a class management tool that allows you to keep all “workers” occupied throughout the production sessions.
- Distribute a transaction record handout to each student and display on the overhead. Instruct students to circle their roles at the beginning of each round. Explain that there will be several timed rounds of the game and that they will record their gains at the end of each round. At the end of the game, they may use their transaction records to purchase candy.
- Bracelet producers/sellers must have classroom bucks to purchase candy.
- Workers/buyers must have bracelets to purchase candy.
- Answer any questions students have about the procedures of the game. Instruct students that they must stay in their assigned roles. (If students question this or object, you may also announce that in later rounds, you may offer opportunities to change roles.)
- Caution students not to begin work until you start the time for the production session. Distribute the half-sheets of paper so that the 3 colors are distributed (approximately) in the following ratio: 3/4 color A; 3/16 color B; 1/16 color C. (For a class of 25 students, give 18 color A, 5 color B, 2 color C.) Announce that students will be using the paper to make 1, 5, or 10 classroom bucks, and designate the paper color (color A = 1 buck, color B = 5 bucks, and color C = 1- bucks) for each denomination. Give a box of paper clips to each seller. Display the currency designs on the overhead.
- Open a 5 minute production/work period. Warn students when there are 30 seconds remaining.
- End the production session. Quickly remind students that during the market session sellers may offer their bracelets for sale at any price, and may even sell at different prices to different buyers. Buyers may offer and/or agree to purchase at any price using the currency pieces they produced.
- Explain that you will act as a bank for those needing change for 5s and 10s.
- Remind sellers to be on the lookout for “fake” currency and that you will be available to judge whether or not a particular piece of currency will be accepted by the bank.
- Remind both buyers and sellers to record transactions on their “Transaction Record” handouts.
- Explain to buyers that any money not spent on bracelets will be collected at the end of the market period. We will assume that any money not spent on bracelets was spent on something else.
- Announce the opening of a 3-minute market session.
- End the market session after 3 minutes (or earlier if all the bracelets have been purchased). Instruct students to complete their transaction records for the round. While they are doing so, circulate through the room, picking up all the currency from round 1.Teacher Note: Anticipate a variety of unscripted occurrences. For example, a group of students may ask whether they can work together to produce currency. The answer should depend on your judgment based on classroom management rather than on the demands of the activity. Similarly, if students try to resell bracelets, decide whether or not you will allow it based on whether or not it is disruptive. If an occurrence is likely to happen in real markets, let it happen in the activity, unless you believe that it gets students off-task or changes their goals in participating in the activity. The one exception is that students may not change roles except as provided for in later rounds of the game. Do not, for example, allow students to “quit” their jobs at the currency factory and go to work for one of the bracelet producers. This results in too many bracelets and too little money, vastly complicating the debriefing.
- Collect classroom bucks (or ask your assistant to do so) from the sellers as deposits to their bank accounts. Collect the purchased bracelets from the buyers for safekeeping. (This is a classroom management strategy that prevents thefts and also effectively eliminates the development of a secondary market.) Also collect the worker/buyers’ remaining bucks. (Remind students that they spent the money on other things when they couldn’t purchase bracelets. This step keeps the money supply stable from round to round, so that subsequent price changes reflect changes in supply.)
- Display the Market Record on the overhead. Ask the sellers to report. (If sellers had trouble keeping accurate records because they were so busy, you may also collect this information by having buyers report their purchase prices.) Record the number of bracelets produced at the various prices. Draw students’ attention to the range of prices and the numbers produced and sold.
- Workers/Buyers: Did everyone who wanted a bracelet purchase one? Why not?
- Who was able to purchase a bracelet and who was not?
- Producers/Sellers: Were you able to make as much money as you wanted to? Why did the two of you end up with different amounts of bucks?
- If you played the first round as practice, have students cross out that round on their transaction sheets. Then, play round 1, using the same set up and directions as the practice round.If students are not used to simulations or if you have a large class or students of very diverse abilities, there is much to be gained by playing a practice round. For teachers with shorter class periods (45 min.), this is also an excellent way to prepare students on one day and run the full activity and debriefing on the following day.
- Check to make sure students have crossed through the practice round on their record sheets. Also be sure to collect all bucks from both buyers and sellers, and to collect or take apart all bracelets.
- After completing and discussing round 1, announce that there will be at least 2 more rounds of the game and that AFTER the next round, workers/buyers who choose to do so may become producers/sellers by purchasing a production “license” from the teacher for 4 classroom bucks or borrowing 5 classroom bucks from the bank. (Loans must be repaid before candy can be purchased at the end of the game.)
- Round 2. Distribute 1 more half-sheet of colored paper to each worker/buyer. (Remind workers that their currency denomination assignments will remain the same throughout the game.) Replenish the producers/sellers’ paper clips if necessary. (Producers should not be limited by not having enough paper clips. This is not an activity about resource constraints.) Conduct a 5-minute production/work period, followed by a market period. Remind students to record all transactions during the market period.
- Display the Market Record on the overhead. Ask the sellers to report. Record the number of bracelets produced, and the price of each bracelet sold. Draw students’ attention to the range of prices and the numbers produced and sold, and to the differences/similarities between rounds 1 and 2.
- Workers/Buyers: Did everyone who wanted a bracelet purchase one? Were you more satisfied with the bracelet sale than in the first round? Why not?
- Who was able to purchase a bracelet and who was not?
- Producers/Sellers: Were you able to make as much money as you wanted to? Was round 2 different from round 1? If so, how?
- Before beginning round 3, announce that more resources have become available and offer the opportunity for workers/ buyers to become producers/sellers for 4 Bucks cash, or 5 Bucks loan (which must be repaid at the end of the activity). (Note: Limit the number of additional sellers to 3-5, depending on the number of students in the class, or you won’t have enough buyers in the market session. Do not announce the number of seller licenses available, just open a line. When you have enough sellers, close the line by saying that there are no more resources available.)
- Use a marker to write “seller” on students’ transaction records next to Round 3.
- Collect 4 Bucks or write “5 Buck loan” on transaction records. Collect bracelets and any unspent currency from the new producers. (The number of bracelets each student purchased will already be recorded on his/her transaction record. Use the marker to circle the number.) Tell students they will be given credit for the bracelets at the end of the game, but that you are picking them up because they are allowed to sell only bracelets they produce.
- Direct students to move into the producer/seller area and give them paper clips.
- Collect bracelets and unspent currency from remaining workers/buyers, and collect money (bank deposits) from sales by producers/sellers before starting the next round.
- Announce that some workers/buyers will be working overtime. Distribute 2 half-sheets of paper to some of the workers/buyers. (The purpose of “overtime” is to keep the money supply relatively stable. For example, if you added 3 producers, two former 1-Buck workers and one a former 5-Buck worker, give an extra sheet of paper to 2 of the remaining 1-Buck workers and 1 of the remaining 5 –Buck workers, or to 7 1-buck workers. Distribute only 1 half-sheet to each remaining $5 or $10 worker.
- Conduct the 3rd production period and then the 3rd market period, reminding students to record all transactions.
- Tally the results of round 3 on the Market Record overhead.
- (Optional) Conduct round 4 if time permits or debrief after round 3. Announce that licenses are still available and that sellers have the option of quitting their businesses and becoming worker/buyers. (If bracelet prices dropped enough, some sellers will decide that they would be better off as workers. If only a few take this option, make them 5-Buck workers. If more than a few, designate some 1-Buck workers.)
- Direct students’ attention to the Market Record overhead. What happened to the level of production and the price of bracelets over the course of the activity?
- Why were prices lower in the 3rd round?
- Why were there more bracelets produced and sold in the 3rd round?
- (To the original 2 sellers) How did your income in the 3rd round compare to your income in the 1st and 2nd? Why?
- (To the new sellers) Did you benefit by becoming a producer/seller instead of a worker/buyer? Why?
- (To workers) Why did you choose to remain workers/buyers instead of becoming sellers in the 3rd round?
- Were you better or worse off in the 3rd round than you were in the 1st and 2nd rounds? Why?
- Which group of workers benefited most from opening the market to more competition in the 3rd round?
- Rounds 1 and 2 simulated what is known as a “closed” market. What are the conditions of closed markets?
- What countries in the modern world or in recent history have market conditions similar to those we simulated in rounds 1 and 2?
- What happened to the level of competition in the market from round 2 to round 3 (and if you ran round 4, from round 3 to round 4), and why?
- Given your experience in the bracelet market, what would you predict would happen to the prices and availability of products if a nation restricted entry into markets?
- It’s easy to think of examples in which communist or dictatorial governments close markets, sometimes to the extent of allowing only 1 producer/seller: the state. However, markets aren’t either “open” or “closed.” Instead, there are degrees of openness, and even very open, highly developed economies may close particular markets to some extent by restricting the entry of new producers/sellers. For example, import tariffs close markets by making it harder for foreign producers/sellers to enter. What other kinds of regulations within a market economy close markets to a greater or lesser extent?
- Direct students’ attention to the flip chart “hypotheses” recorded in the discussion before the simulation.
- Which hypotheses are supported by the bracelet simulation?
- Which hypotheses are challenged by the bracelet simulation
- Given your experience in the bracelet market, would it be better to be a poor person in a country with open markets or in a country with closed markets?
- Given your experience in the bracelet market, what would you predict would happen if a country with closed markets and government sellers were to allow additional sellers to enter the market?