Case study: Active Learning Instruments for Teaching Under-graduate Economics Concepts

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Experiment #4: The Auction Market

This experiment is a single-period simulation that provides students the opportunity to plan and implement a strategy in a competitive environment. The game includes an auction in which players bid for raw materials. This auction can result in players making technical changes to planned strategies in response to conditions created by the auction. After the players have obtained their necessary raw materials, they create meal menus that are the source of company profits. Thus, the game has an active component that helps students become involved and gives the game sufficient educational richness.

The game begins by distributing the instruction sheet that provides students with the information they need to plan an overall strategy. This sheet is presented in Figure 4. The winner of the game is that player who receives the highest profit. Players can choose to offer only low, only medium, or only high priced meals, or a combination of low, medium, and high priced meals. Students do not know the optimum strategy at this time since the interactions of the players in the auction will establish each menu's relative profitability. The dynamic game aspect requires players to modify their strategies to meet evolving market conditions.

Figure 4: Instruction sheet

MEAL CALORIE COUNTER MODERATE MEAL WAIST
WASTER

PRICE

$10

$20

$30

Salad

(1) Vegetable

(1) Vegetable

Entrée

(1) Meat
(1) Vegetable
(1) Bread/Pasta

(1) Meat
(1) Vegetable
(1) Bread/Pasta

(2) Meat
(1) Vegetable
(1) Bread/Pasta

Dessert

(1) Sweet

(1) Sweet
(1) Fruit

Beverage

(1) Beverage

(1) Beverage

(1) Beverage

Players are asked to examine the structure of the menu and determine which menu they will offer. They are instructed that the food will be offered at auction, and they will be biding against other restaurants. Each food will be offered several times during the auction. Players have a budget of $2,500. If a player purchases $2,500 worth of food, he/she runs out of money and must stop biding.

The optimal number of players is five or six. Large classes can be broken up into teams with each team developing its own strategy. There should be only one designated bidder on each team. The instructor conducts an auction using a Bid Sheet that is illustrated in Figure 5.

Figure 5: Auction Bid Sheet

ITEM

QUANTITY

BIDDER

PRICE

BREAD/PASTA

100

   

VEGETABLE

100

   

MEAT

100

   

SWEET

100

   

VEGETABLE

100

   

BEVERAGE

100

   

MEAT

100

   

BREAD/PASTA

100

   

VEGETABLE

100

   

BEVERAGE

100

   

MEAT

100

   

SWEET

100

   

VEGETABLE

100

   

BREAD/PASTA

100

   

FRUIT

100

   

MEAT

100

   

BEVERAGE

100

   

VEGETABLE

100

   

The length of the auction should be about 30 minutes or until each restaurant team runs out of money. The prices established by the biding can have the effect of changing the players' previously established plans, and the players will have to adjust rapidly. The minimum bid can be set at a minimum of $50 or $100 per lots of goods to prevent excessive profiteering.

After the auction is closed, the players are asked to use the food they purchased to construct the combination of meals that will make them the most money. They are also informed that they can sell all complete meals at the price indicated. Meals may come from one or more than one of the menus. Food that cannot be used in preparing a meal is considered waste that cannot be resold or transferred to another restaurant. Then, the players are asked to calculate the value of the meals that they sold, and their total profit. The restaurant with the highest total profit wins.

After the game is concluded and the winner is found, a debriefing session can be held to review lessons learned from the game. The lessons learned are in the area of auction, planning and allocation process. Many students have never experienced an auction, so time can be used to examine the nature of a competitive market environment. Debriefing should indicate how the dynamic nature of the market could cause players to change their initial strategic plans. The allocation process can be explored through the use of mathematical programming to find the optimal solutions. The instructor can illustrate the sensitivity of optimization to the mix of inputs and further illustrate the integrated nature of all market processes on the success of the firm.

The Restaurant Game helps students learn to acquire information through listening and observation and allows them to practice skills of organizing and evaluating information. The game is used with the purpose of providing classroom instruction with a dynamic exercise that can be used to demonstrate multiple aspects of economic activity.

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