Originally posted by Alex Tabarrok on November 24, 2009.
Here is a fun, easy and effective experiment that instructors can use to illustrate the gains from trade. The instructor puts chocolate bars ("fun-size") or other candy in bags, one bag for each student. (Alternatively, you can use the type of small items that you can find at a dollar store. Filling the bags is where the most work comes in especially if you have a large class). Students open the bag and are then asked to write down how much they would be willing to pay for the bag's contents. But before snacking, students are allowed to trade. After a few minutes of trade, ask the students to write down their valuation again. Voila! Gains from trade. With a few numbers pulled at random from the students you can do a back of the envelope calculation for the total increase in value. The experiment doesn't take long and the students will appreciate the candy!
A hat tip to Randy Simmons who first introduced this experiment to me.