Introduction to Markets
Textbook Chapter: Chapter 4
MobLab Game: Private Value Sealed Bid auction
Key Teaching Points:
- Learn how a basic exchange happens by participating in an auction.
- Gains from trade (i.e., consumer surplus).
- Price discovery: the transaction price results from the bids of other buyers.
Supply and Demand in a Competitive Market
Textbook Chapter: Chapters 4 & 5
MobLab Game: Competitive Market
Key Teaching Points:
- The “invisible hand” of the market: how individual profit maximization leads to competitive market equilibrium.
- Price discovery: the equilibrium market-clearing price results from the valuations of different buyers and costs of different sellers.
- Gains from trade (i.e., consumer and producer surplus).
- Shifts in either supply or demand change equilibrium outcomes.
Government Interventions in Competitive Markets
Textbook Chapter: Chapters 7 & 8
MobLab Game: Competitive Market
Key Teaching Points:
- Government interventions (per-unit taxes, subsidies, price ceilings and floors) alter equilibrium outcomes.
- Equilibrium outcomes do not depend on whether buyers or sellers pay the tax.
- The difference between tax incidence and who pays the tax.
- Relative elasticities determine incidence of a tax or subsidy.
- Excess supply (price floors) and excess demand (price ceilings).
- The efficiency implications of government interventions.
Externalities
Textbook Chapter: Chapter 10
MobLab Game: Judge Me Not
Key Teaching Points:
- When firms do not internalize external costs, profit maximization leads to inefficiently high levels of pollution.
Public Goods
Textbook Chapter: Chapter 11
MobLab Game: Discrete (Threshold) Public Goods
Key Teaching Points:
- Highlights the features of public goods: non-rival and non-excludable.
- Demonstrates the distinction between private and social benefits of public goods.
- Shows how individual profit maximization leads to the free-rider problem.
Monopoly Pricing
Textbook Chapter: Chapter 15
MobLab Game: Cournot (with Group Size=1)
Key Teaching Points:
- Monopolies restrict output in order to increase price.
- The tension between the quantity price effects of increased output.
Game Theory
Textbook Chapter: Chapter 17
MobLab Game: Prisoner’s Dilemma
Key Teaching Points:
- Key features of games: payoff matrices, best responses and dominant strategies.
- Identification of the Nash equilibrium.
- The (sometimes) conflicting incentives of cooperation and self-interest.
- Repeated play may lead to more cooperative outcomes.
Oligopoly
Textbook Chapter: Chapter 17
MobLab Game: Cournot
Key Teaching Points:
- The underlying logic of the Cournot model: how market price is determined by aggregate output.
- The equilibrium outcomes of Cournot competition.
- Repeat interaction may lead to collusive behavior.
Labor Markets
Textbook Chapter: Chapter 18
MobLab Game: Simple Labor Market
Key Teaching Points:
- When a perfectly competitive market determines wages, the equilibrium wage (per unit of labor) is equal to the value of the marginal product of labor of the last worker hired.
Asymmetric Information (Adverse Selection)
Textbook Chapter: Chapter 22
MobLab Game: Market for Lemons
Key Teaching Points:
- Experience in a market with asymmetric information.
- Asymmetric information may lead to adverse selection and market failure.
Asset Valuation
Textbook Chapter: Chapter 27
MobLab Game: Bubbles and Crashes
Key Teaching Points:
- Highlights the determinants of an asset’s value: income generated and resale value.
- Shows how asset bubbles may develop even with complete information.
Money & Banking
Textbook Chapter: Chapter 29
MobLab Game: Bank Run
Key Teaching Points:
- Highlights the underlying concept of fractional banking.
- Demonstrates the trade-off between profit and risk and shows how bank runs may arise.
- Policy interventions, such as deposit insurance, can reduce the possibility of bank runs.
International Trade
Textbook Chapter: Chapters 31 & 32
MobLab Game: Comparative Advantage
Key Teaching Points:
- The distinction between absolute and comparative advantage.
- Experience first-hand the gains from specialization and trade.
- Differences in opportunity costs lead to mutually beneficial trade.