Purpose:

A game to show how market demand curves can be derived from individuals' demand curves. The game introduces the concept of elasticity.

Learning Objectives:

At the end of the game, students should understand:

• How individuals' demands combine to create market demand
• How to plot a market demand curve
• The basic principle of price elasticity of demand, income elasticity, and cross price elasticity
• How to calculate price elasticity of demand, income elasticity, and cross price elasticity
• How to plot a shift in the demand curve

Requirements:

• Table
• Can of coke
• King-size Snickers bar
• Pint of milk
• King-size Mars bar
• 4 '50p' price labels and '£1' price label (available to print out)
• Printed out activity sheet for each student

Timing:

1 hour

Method:

Stage 1

1. Set up the table as a shop with the four products on top. Place a 50p price label in front of each product.
2. Explain to the students that they have a maximum of £2.50 to spend and can buy any of the products in the shop, in any combination. They can buy any number of one product and do not have to buy all the products. Then tell students they must spend all of their income.
3. Ask students to fill in the first table in their activity sheet.

Stage 2

4. Explain to the students that it is now a new day and they have consumed all the food they bought yesterday, in order to create a new demand curve based on new prices and quantities.
5. Explain that a global shortage of peanuts has pushed the price of a Snickers bar up to £1. Replace the 50p label in front of the Snickers bar with your £1 label.
6. Explain to the students that they still have £2.50 to spend. Ask them to complete the second table in their activity sheet with their new preferences following the price rise.

Stage 3 - Calculating Market Demand

7. Organise the students into groups of 5-6.
8. Ask the students to work out the market quantities for their group for stages 1 and 2 by adding together the quantities for each product at each price level demanded by the individuals. Show an example of how to do this.
9. Ask the students to complete the table on the Activity sheet.
10. Ask the students to plot the Market Demand for Snickers on the template provided.

Stage 4 - Introducing Price Elasticity of Demand

11. At this stage, students will be introduced to the concept of elasticity. The reactions to the change in price of Snickers bars will show how responsive demand is to a change in price. Ask students to feedback what has happened to demand as a result of the change in price.
12. To develop this, explore how we might be able to get more accurate data on the changes that have been observed. (The intention is to lead students to identifying percentage changes as the method.)
13. Ask the students to calculate Price Elasticity of Demand for Snickers bars for their group.
14. Try to use the completed activity sheets to distinguish between elastic and inelastic PED.

Stage 5

15. Explain to the students that it is now day 3 and the peanut crisis has eased. Snickers now cost 50p once more. Replace the £1 label in front of the Snickers bar with the 50p label.
16. Explain to the students that the generosity of the government has provided all students with a grant (or Education Maintenance Allowance) and they now have £4 to spend.
17. Ask the students to fill in the third table on their activity sheet, spending all of their £4.

Stage 6 - Introducing Income Elasticity of Demand

18. Ask the students to complete the table to show the difference in market demand for Snickers bars at the different income levels from stages 1 and 5.
19. Ask students to plot this Market Demand for Snickers bars on the next template.
20. Explain to the students that they can now see responsiveness of quantity demanded to a change in income. Explain that this is called Income Elasticity of Demand.
21. Explain how to calculate Income Elasticity of Demand and ask them to calculate Income Elasticity of Demand for Snickers bars for their group.
22. Ask students to formulate ideas about the relationship between this product and income. This should prompt you to discuss normal and inferior goods, and how they would behave.

Stage 7 - Introducing Cross Price Elasticity of Demand

23. Ask the students to go back and look at the Market Quantities for their group in stages 1 and 2. Ask them to look at how the quantities demanded of other goods changed when the price of Snickers bars increased.
24. Explain how differences in demand caused by a change in price of one good can cause a shift in the demand curve of another good.
25. Explain how to calculate the Cross Price Elasticity of Demand.
26. Ask students to calculate the Cross Price Elasticity of Demand and plot the shift in the demand curve for each of the three other products on the templates provided.
27. Ensure students are drawing a shift in the demand curve, rather than two points on the demand curve, by walking round the class.
28. This should lead to discussion on the relationship between the different products and thus to the concepts of complementary goods, substitute goods and non-related goods.

Conclusion

29. Finish the lesson by asking the class to discuss their findings together. Review the lesson by commenting on whether goods were complements or substitutes, and normal or inferior. You could discuss what their expectations of elasticities of different goods were compared to the actual results of their calculations.