Competitive Equilibrium and Classroom Pit Markets

Abstract: Efforts to show the relevance of economic concepts early in a student’s education can prevent the “economics is not very useful ” attitude from setting in. The author extends the work of Holt to describe a pit-market experiment used to illustrate the concept of competitive equilibrium. In addition to detailed instruc-tions as to how to set up and conduct a pit-market experiment, the author dis-cusses features of the data and provides accompanying materials, including soft-ware for the display of the data. Key words: classroom experiment, competitive equilibrium, experimental eco-nomics, pit market JEL codes: A2, C92, D41 Economic concepts are taught at such a level of abstraction that the student views these concepts as irrelevant to understanding real-world phenomena. Small efforts to show the relevance of economic concepts at the earliest stages of a stu-dent’s training can prove invaluable to his or her outlook on the discipline. My aim in this article is to offer instructors a tool to convince students of the salience and relevance of one of economics most central and empirically robust concepts, that of competitive equilibrium. I provide a detailed description of a market experiment used to display the power of the competitive equilibrium outcome. My own experience suggests that conducting this experiment early in an economics student’s education, soon after teaching the concept of competitive equilibrium in introductory microeconomics, for example, goes a long way in preventing the “economics is not very useful or relevant ” attitude from setting in. The use of experiments in the classroom continues to expand beyond dedicat-ed courses in experimental economics. An increasing number of nonexperimen-talists are expressing interest in conducting experiments in elementary classes to demonstrate fundamental economic concepts. To serve this end, Bergstrom and Miller (2000) have written a textbook designed to illustrate elementary econom-ics principles through experiments. Schotter (1997) provides an intermediate microeconomics textbook that emphasizes the use of classroom experiments. Delemeester and Brauer have compiled an extensive, annotated list of 122 class-Bradley J. Ruffle is an assistant professor of economics at Ben-Gurion University (e-mail