Ages 6->11: Unit 4: Explain Market Price

Objectives:
(1) To understand the simplest form of market exchange -- barter.
(2) To understand why individuals exchange goods in a market.
(3) To explain the price and cost of an exchange.

Teaching Notes:
A market develops in order to help individuals sell goods that they have produced and buy goods that they want. The simplest form of market exchange is conducted through the process of barter (e.g. I'll give you this goat if you give me 2 bicycles). There is no need for money or standardised prices with a barter exchange. The market price of the good is expressed in terms of another good (e.g. 1 goat = 2 bicycles). Although it is apparent that market will run more efficiently when goods for sale are expressed in monetary units and are paid for with cash, bartered exchanges are an effective means of basic trading.

Focus Activity: -- Preparation:
(1) Have a number of small paper bags equal to the number of children in the class.
(2) Collect a number of small items to go into the bags: candy, stickers, school supplies, stamps, etc.
(3) Place one item into each of the bags.

Directions on Using the Focus Activity:
(1) Divide the class into "teams" of 5-6 students.
(2) Give each student in each team a bag with one item in it. Try to make sure that the students within each team all have different goods. Tell the students not to show other students what they have in their bag.
(3) Allow the students a minute to look inside their bag and decide whether they want to keep their good or if they want to trade with another member of their team. If they decide that they want to trade, they should place the good they want to trade on their desk or on the floor in front of them.
(4) Allow the students to trade goods within their own team.
(5) After within team trading has finished, allow the students to expand their trading to members of other teams. Anybody who wants to trade their good should hold it in front of them and trade when they agree to an exchange with someone else. Students can trade more than once if they want to. This session should last about 5-10 minutes.
(6) Ask the class to fill in the worksheet on the grab bag exchange.
(7) Lead the class in a discussion of the grab bag exchange. What were the advantages of exchange? Were there any problems? What did you exchange and why? How did the opening of the market from within team trading to trading with everyone affect the exchange of goods? What were the "prices" of the different goods? How were "prices" determined?

Key Questions to be covered in the lesson:
(1) What is exchange and what is barter?
(2) Why do people exchange goods in a market?
(3) How are prices determined in a market?
(4) How does the size of a market affect exchanges and prices?

Answers:
(1) Exchange occurs when trading takes place. One good is exchanged for another good or for cash.
(2) People participate in exchange in order to get a bundle of goods with which they are happier. If someone has a surplus of one good (e.g. bicycles) they want to trade some for another good which will give them greater happiness (e.g. a goat). Even if they do not have a surplus of a good but simply desire one good over another they will engage in trade and exchange in order to obtain the more desirable good.
(3) Prices are determined by an agreement between the suppliers of a good and the price that they want for a good and the consumers of the good and the price that they are willing to pay. The price in a barter exchange is expressed in terms of other goods. The price in a more formal market is expressed in terms of a money price.
(4) The bigger the size of a market, the more goods that are available, meaning more choice. Also, there is more competition between the larger number of suppliers which will normally result in lower prices. Of course, the larger market also generates more buyers which has the tendency to increase the price of goods in high demand.

Extensions and Variations:
(1) Place more than one item in each bag to provide more trading variations and opportunities.
(2) After the grab bag exercise, have each student come up with a service that they are willing to complete for another student in exchange for a service in return (e.g. clean shoes, do laundry, etc). Have the students write down on a piece of card the service they are offering and then have the students move around the classroom completing exchanges.

Objectives:
(1) To show examples of markets in the local community.
(2) To explore how markets work.
(3) To show the wide variety of markets in a local economy.

Teaching Notes:
Markets exist where buyers and sellers meet to conduct exchanges of goods and services. In most markets, transactions are completed using money as a unit of account. The seller puts a good up for sale at a price that he or she knows from previous experience or market research will be acceptable to a certain number of consumers. Generally, the use of money and using prices in monetary terms will facilitate market activities. Sellers know that they will be able to exchange the money for any other good in the market, unlike with the single good received in a barter exchange.

Focus Activity: -- Preparation:
(1) Collect a number of local newspapers, telephone directories, and a list of local businesses from the local chamber of commerce or similar group.

Directions on Using the Focus Activity:
(1) Have the students "brainstorm" all the businesses located within the local community. They should also "brainstorm" a list of the local indoor and outdoor markets, shopping centres, and other places where several businesses are located together. List all the examples on the board.
(2) Discuss the various goods and services that these businesses provide. Ask the class why it is important that they (the students) and their families, acting as consumers/buyers, show up at these local businesses.
(3) Allow the students to conclude that the place where shoppers (buyers) and suppliers (sellers) meet plays an important role in the local economy. The place is called a market. A market is where buyers and sellers meet to exchange goods for money.
(4) Divide the class into small groups. Give each group some copies of local newspapers, telephone directories, and lists of local businesses. Have the groups find examples of different types of markets. The students should identify who are the consumers and who are the suppliers in each of the markets and why each of their chosen examples should be considered to be a market. Examples of local markets the students should find include: a hospital; an airport; a local fruit market; a restaurant; a hotel; a supermarket; a bakery; a sports stadium; and a bank.
(5) Have the groups report their findings to the rest of the class. Allow the discussion to lead to a clear understanding of the concept of a market and the realisation that there is a large variety of buyers, sellers, and markets.

Key Questions to be covered in the lesson:
(1) What is a market?
(2) How do markets work?
(3) What types of market are there?

Answers:
(1) Markets are places where buyers and sellers meet to conduct business. Normally the seller will exchange goods or services for a monetary payment.
(2) Markets work by bringing buyers and sellers together where they can come to an agreement over the purchase of and payment for goods. Markets exist for particular goods and services so buyers know where to go to get a certain good or service.
(3) There is a large variety of markets; one existing for each group of goods or services sold.

Extensions and Variations:
(1) Take the lesson out onto the streets to visit the different markets.
(2) Invite local shopkeepers and other market participants into the classroom to talk about how markets work.
(3) In preparation for the class, ask the students to interview a local shopkeeper or businessman or woman and ask them about their views on consumers, suppliers, markets and how they work. Students should write up their interview for presentation in class. If the class has access to a tape recorder or video recorder, the interview can be taped to be played back in class.

Objectives:
(1) To introduce the concept of market price.
(2) To show how money (and market price) helps express the market value of goods.

Teaching Notes:
Refer to the teaching notes for lesson #2. In addition, market price is generally considered to be the price where buyers and sellers agree on a certain price for a certain quantity of a good or service. Sometimes market price is referred to as the equilibrium price because it is where the market is in equilibrium: buyers and sellers agree and the market clears. All the goods are sold as there are enough buyers willing to pay the price asked by the sellers. It is important to have enough money or cash circulating in the local economy to ensure that all the transactions can take place.

Focus Activity: -- Preparation:
(1) Make a transparency of the cartoon about the price of shoes. If there is no Overhead Projector available, make a number of copies of the cartoon to be posted around the classroom later in the class.
(2) Make copies of the cartoon about the price of shoes with the bubbles blank; ie with the words removed. (Teachers can substitute a more familiar cartoon or one of their own if they like.)
(3) Have available plenty of paper, markers or crayons, and pencils.

Directions on Using the Focus Activity:
(1) Give out a copy of the cartoon with the bubbles blank to each student.
(2) Have the students brainstorm about the possible dialogue in the bubbles. What point do they think that the cartoonist is trying to make? Do the students have possible ideas for the bubbles that would make the situation/cartoon humorous? Ask the students to fill in their cartoon. Share ideas around the entire class.
(3) Show the transparency of the original cartoon with its words (or direct the student's attention to the copies posted around the room). Discuss the humour in the cartoon. Use the cartoon to lead to a discussion of market price.
(4) Relate the student's discussion to the use of money as a unit of account. Money is used to express the market value of different goods and services.
(5) Have the students, individually or in pairs, create their own cartoon from scratch. The cartoons should relate to the topic of market price and the use of money in market exchanges.
(6) Share the cartoons with other members of the class and use them to continue the discussion of markets, money, and price. Cartoons can be posted around the classroom as part of the display on the economics of the market.

Key Questions to be covered in the lesson:
(1) What is a market price?
(2) How is a market price determined?
(3) What is the role of money in expressing market value?

Answers:
(1) A market price is where buyers and sellers agree. A seller offering a certain quantity of a good for sale at a given price is able to sell all goods at that price to a group of buyers. That price is the market price.
(2) Normally, the price determined by a seller in the market is based upon prior experience about what buyers are willing to pay or through some form of market research.
(3) Money makes market transactions much easier as all prices are in the same units and buyers and sellers have a consistent unit of account.

Objectives:
(1) To show how market prices are determined.
(2) To show the importance of money as a means of exchange.
(3) To allow students to create a simulated market activity.

Teaching Notes:
See teaching notes for lessons #1 to #3. In addition, it is worth noting that market price can also be obtained through a competitive auction process. When several sellers of a particular good enter a market with several buyers, the resultant price tends to be a fair estimation of market value. The competition between buyers and the competition between sellers will lead to a fair market price for all; one which accurately reflects the true market value of the good.

Focus Activity: -- Preparation:
(1) Prepare a number of cards representing different goods for the market. You should have a considerable number of cards for each good and a reasonable number of goods. For example, for a class of thirty students, you should have sets of twenty (20) cards of 7-8 different goods. The goods can be any finished product from eggs to radios. With a larger class have a greater selection of goods.
(2) Have ready a quantity of play money. The amount of play money necessary depends upon the size of the class and the market value of the types of goods chosen to be represented on the cards. Basically, you need enough play money to purchase all of the goods on all of the cards.
(3) If possible, take the students to a live auction or open air market on a field trip. Have them observe the interaction between the buyers and the sellers and how price is determined through negotiation, competition, and exchange. If a live visit is impossible, show the students a video or play an audio recording of live market activities.

Directions on Using the Focus Activity:
(1) Divide the class into consumers (buyers) and suppliers (sellers). Roughly half should be in each group, although the actual numbers can be decided by the teacher.
(2) Give each student who is a consumer a certain amount of play money. The amount given to each student should be an equal portion of the total stock of play money. The total stock of play money should equal the approximate market value of all the goods that will be available in the market.
(3) Give each student who is a supplier a set of 20 cards of one particular good. Each card represents one unit of the good that they have for sale. Give 3-5 students sets of the same particular good.
(4) Instruct the class to remember what they learned in previous classes on markets and what they observed in their visits to an auction or market and to play their role as buyer or seller in your simulated market. Remind sellers of goods that once they receive some money from a sale of a good, that they also become buyers in the market.
(5) Tell the students that the stimulated market is about to begin. Sellers of each particular good should congregate in a particular area in the classroom. Buyers should move around the classroom looking to buy approximately 5-10 units (cards) of each good in the market. Instruct the sellers that they are trying to get as high a price as possible for their good and instruct the buyers that they are trying to purchase the goods for as low a price as possible.
(6) Let the simulated market begin. Transactions may be via small local auctions or by the natural interaction of buyers and sellers. Each seller should record each sale on a piece of paper, noting quantity sold and price per unit. Remind buyers that they are not allowed to re-sell goods once they have purchased them. However, remind sellers that they may become buyers of goods once they have money to do so.
(7) Allow the market activity to continue for 15-20 minutes. At the conclusion, remind the students of the action they observed at a real market and lead a comparative discussion of the dynamics of the simulated market activity. Ask the key questions concerning price, market interaction, competition, and the role of money. Use the recorded market transactions to show how market price is determined. Discuss any volatility of prices and ask the students to consider what caused prices to change. Use the exercise to explore all aspects of market behaviour and price determination.
(8) Finish the exercise with each student writing a journal entry on "My day at the Market". These entries can either be read aloud at a later class or posted on the wall of the classroom for everyone to consider.

Key Questions to be covered in the lesson:
(1) How is market price determined ?
(2) What is the role of money?
(3) How does market price relate to market value?

Answers:
(1) Market price is determined by the interaction of buyers and sellers.
(2) Money acts to facilitate market exchanges as money acquired through the sale of one good can subsequently be used to purchase a different good.
(3) In a competitive market with a reasonable number of buyers and sellers, market price is a reasonably close reflection of value -- market or otherwise.

Extensions and Variations:
(1) Give different levels of income (in terms of play money) to different buyers to explore the impact of an unequal distribution of income on purchasing behaviour and price determination.
(2) Allow for sellers to join together and fix prices of particular goods in order to show the impact of collusion on competitive market prices.
(3) Basically, come up with any idea that changes the initial position of similar buyers and equivalent sellers in the market so that different economics points can be raised.

Objectives:
(1) To show trends in world prices of commodities.
(2) To explore the reasons for changes in world market prices.
(3) To allow students to apply mathematical and statistical techniques to economic data.

Teaching Notes:
World prices of commodities come from the interaction of an enormous number of buyers and sellers of a particular commodity throughout the world. Generally, as with most goods, an increase in the supply of a commodity will decrease its price while a decrease in its supply will increase its price. Similarly, an increase in the global demand for a commodity will tend to increase its price while a decrease in demand will lower the price. Commodities represent basic staples such as crude oil, petroleum, wheat, soy beans, copper, coffee, and gold. World commodity prices are reported in newspapers throughout the world.

Focus Activity: -- Preparation:
(1) Either have the students collect data on commodity prices over the past ten (10) years or prepare the information yourself using library, newspaper, or world wide web resources.
(2) Display information on the prices of various commodities around the classroom. If possible, have the preparation of the display completed by the students, perhaps within the context of a larger project involving geography. In that way the display could include maps showing the location of commodities and pictures/drawings on the extraction, production, and use of the commodities.
(3) Have available a good quantity of graph paper and materials for posters.

Directions on Using the Focus Activity:
(1) Using the displays of information, ask the students to graph the market price movements of specific commodities using graph paper.
(2) Have the students talk about the volatility of prices of different commodities and get them to explore some of the reasons for the price movements or the lack of movement. Students should consider the role of natural effects such as weather, natural disasters, good or bad harvests, and other types of supply shocks as well as the impact of changing demand. They should be encouraged to hypothesise about the reasons for particular price movements. The teacher can lead the discussion to the most likely cause.
(3) Divide the class into groups with each group taking one commodity. Instruct the students to use the poster materials to construct posters on the market price of their commodity. The posters should include: a clear and colourful title; a graph of the price movement; some drawings depicting reasons for the price changes; any other graphs the students want to construct from the price materials; and any personal touches for their poster.
(4) Posters should be hung with the existing displays on commodities. The teacher can lead the students around the classroom and discuss differences between different commodities, particularly concerning market price movements.

Key Questions to be covered in the lesson:
(1) How are the market prices of commodities determined ?
(2) How and why do market prices change over time?

Answers:
(1) Commodity market prices are determined by the interaction of buyers and sellers. The greater the supply of a commodity, the lower its price. The greater the demand for a commodity, the higher its price.
(2) Market prices can change a great deal over time due to changing supply and demand conditions. Supply shocks such as a natural disaster can greatly reduce supply leading to a price increase or a change in tastes and the increased popularity of a commodity can increase the price from the demand side.

Extensions and Variations:
(1) Invite a commodity trader into class to talk to the students about commodity prices.
(2) Extend the exercise into a geography project. Plot on maps the location of commodities around the world and trace how different commodities find their way to the local market. Use the commodity as the focal point of the projects.
(3) Extend the exercise into a mathematics class. Graph the prices of different commodities against one another to see if there are any common trends to the price movements. Students can calculate average prices as well as complete other statistical and arithmetic exercises.