This exercise introduces the notion of demand as a
function with "steps" that represent maximum willingness to pay, i.e.
the marginal value of consumption.
Step function graphs facilitate a subsequent understanding of buyers' surplus, since the
area under demand can be calculated visually.
(An alternative "employer" context, puts participant plays the role of a firm that must decide how many
input units to demand; this framework makes it easier for students to understand
where the buyer's values come from, i.e. as added revenues from increasing
production.) The exercise is designed to highlight the importance of
making decisions at the margin, since purchase decisions based on comparisions
of average values and purchase price will lead to lower earnings.
One treatment option involves adding a tax to be paid for each unit purchased,
which can lead to a discussion of demand shifts. Learning is enhanced by
feedback about relative earnings.
Copyright 2009, Charles Holt, Please report problems and suggestions:
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Vecon Lab - February 20, 2020