Buying computers

Buying Money

Rule of Thumb

Advanced Games

Now let's learn about some games that you can play with your class to help them learn some of the basic concepts of economics. (By the way, it is very important in designing any lesson plan, regardless of the subject area and age level of the students, to stimulate the students imagination and to include some form of activity. One need not go crazy trying to have endless "hands on" activities that take forever and a day to set up. Likewise, one need not dream up ideas that are so refreshing and rare and interesting that no one can resist. Keep things simple. Introduce a little imagination and a little activity. Let the students themselves embellish the lesson with their own ideas.)

One variation of the game would be to pretend that the students in your class are buying Mac and PC computers. These are" futures" so each time a transaction takes place a student doesn't actually exchange money for a computer. Rather, the process influences the future value of both kinds of computers. Tell each student that she or he has $10.00 and that, initially, the price of one Mac or one PC is $3.00. The ground rules are that students take turns making purchases, and that during each turn only one transaction can take place involving the purchase or sale of only one unit.

The options that students have when it is their turn is to buy either a Mac or a PC or sell either a Mac or a PC to the dealer. When it is their turn, they must buy or sell at the current price.

Inasmuch as the purpose of the activity is to teach students how they vote with their dollars, each vote has to have an impact on the market for Mac's and PC's. The procedure you use for this game is very simplistic and should not be regarded as any attempt to mimic the actual happenings in the marketplace.

Nevertheless, the affect of a vote is as follows:

  1. When a student buys a Mac, a 1 is placed in the Mac column.
  2. When a student buys a PC, a 1 is placed in the PC column.
  3. At the same time, when a student buys a Mac, a negative 1 is placed in the the PC column.
  4. Likewise, when a student buys a PC, a negative 1 is place in the Mac column.
  5. At any point in the game after a transaction has resulted in a +3 accruing in either the Mac or the PC column, then the price of that particular computer goes up by $1.00. At the same time, the price of the other computers goes down by $1.00. This change goes into effect for the next person who makes a transaction.
  6. Similarly, at any point in the game after a transaction has resulted in a -3 in either the Mac or the PC column, then the price of that particular computer goes down by $1.00. And, at the same time, the price of the other computer goes up by $1.00.

The purposes of these manipulations in the cost of the computers is to artificially mimic the forces in the market place that determine the price that buyers are willing to pay for a good and the price that manufactures are willing to sell a good.

Let's suppose that Dick and Jane each have $10.00, and they go to the computer store . Initially, the cost of both a Mac and a PC is $3.00, which means that, unless the market changes, both Dick and Jane could purchase three computers and have $1.00 left.

But Dick and Jane are in for a surprise! Dick yields to Jane who goes first, and Jane buys one Mac. Then Dick buys a Mac, and when Jane has another turn, she buys another Mac. Because the column that keeps track of the number of purchases of Mac's has reached a value of 3, the bank closes to adjust the prices. The cost of the Mac now rises to $4.00 whereas the cost of the PC has dropped to $2.00.

In an effort to simplify the game while still teaching the basic concepts, the column that keeps track of the number of purchases for both computers is set at 0 in both the PC and the Mac column every time there is a price change.

The moment of truth has arrived for Dick. His net worth is one Mac computer worth $4.00 and $7.00 in cash. At this point in time, Dick's net worth is $11.00.

In contrast, Jane owns two Macs valued at $4.00 each and $4.00 cash. Thus, Jane's net worth is $12.00.

Jack has three choices, and he must make a choice. (There is no passing in this game, and the order of play can never be modified.) If Jack buys a Mac, he will have two Mac's worth $4.00 each plus $3.00 cash. Thus, Dick's net worth is $11.00. If Jack buys a PC, he will have one Mac worth $4.00, one PC worth $2.00, and $5.00. In this case, his net worth would be $11.00. If Jack sells his Mac, he would have $11.00 in cash.

Let's suppose Jack buys a PC for $2.00. That means he has one Mac worth $4.00, one PC worth $2.00, and $5.00. He is still worth $11.00. In other words, at this point in the game any one of the three options would result in Dick having the equivalent of $11.00 and Jane having the equivalent of $12.00.

Therefore, after three transactions, Jane has increased the value of her portfolio by $2.00 and Dick has increased the value of his portfolio by $1.00. Now it's Jane's turn.

Let's suppose Jane is seeing $ signs and decides to sell one of her Mac's. Thus, Jane ends up with one Mac worth $4.00 and $8.00 cash. She is still worth $12.00.

Dick is back up to bat worth $11.00, and he decides to buy another PC. He then has one Mac worth $4.00 and two PC's each worth $2.00, and $3.00 cash. He still is worth $11.00, or a dollar less than Jane.

An interesting thing has happened! The bank closes because in the tally columns for both the Mac's and the PC's, the absolute value is 3. Mac has -3, and PC has +3. According to our rules, this means that the value of the Mac now drops to $3.00, and the value of the PC rises to $3.00. Both computers have returned to their "suggested retail price" as a result of the "voting with dollars" by which Dick and Jane bought and sold computers.

Let's see what the net worth of Dick and Jane is now. Jane has one Mac worth $3.00 and $8.00 cash for a total of $11.00. Dick has one Mac worth $3.00 and two PC's each worth $3.00 plus $3.00 cash. Dick is now worth $12.00, and the shoe is on the other foot.

Let's reflect on this very simple game. It is obvious that the way I have described this game one could simply go back and forth between buying and selling computers taking advantage of KNOWING the rules. That is, both Dick and Jane know that anytime an absolute value of 3 occurs in either or both columns that keep track of the number of transactions, the bank will close, and the value of the computer will change.

However, suppose many people are playing this game, no one has contact with any other participant, and no one has access to the data on the number of transactions accumulated by either computer. That would be a whole new ball game with the players truly having to speculate on the future value of the computers.

Moreover, the game can be further modified to allow the plays to make multiple purchases each time they have a turn. For instance, if the cost of a PC is $1.00 and a player has $12.00, that player could end up with twelve computers each of which is worth $1.00 but all of which have the potential of increasing in value. And this is very likely what will happen. (Of course, it is possible, but very unlikely, that there might be no demand for PC's or Mac's and that dealers could lose their shirts.)



Obviously this is an over simplification. For example, several years ago most motor oil manufacturers switched from oil cans to plastic oil containers with screw caps. Before this big change, a popular item in auto parts stores was a plastic funnel that would fit on top of an oil can that had two openings placed in it with a can opener. This device made it easy and less messy to add oil to a motor.

But as soon as oil cans disappeared from the market, the demand for funnel caps dried up.

In contrast, in 1974 those distributors who were lucky enough to have stockpiled gasoline were in pretty good shape. Almost overnight the value of gasoline went through the roof. The OPEC oil embargo sharply moved the supply curve to the left, and there was a severe shortage of gasoline and other oil-based products. Initially, the demand for gasoline remained the same because people still had cars that got low mileage, and people still had to use their cars to go to and from work. The demand curve began to change--shift to the left-- as automakers offered more fuel efficient cars and people were encouraged to car pool and use public transportation.



The basic design used in the above example can be applied to many different situations and can be made more complicated and more interesting according to the interest and skill level of those involved.

For example, suppose that you want your students to understand the financial section of the newspaper that contains information about foreign exchange rates, the worth of the dollar, and the price of gold and silver. To begin with you would want to discuss with your students their own experiences of traveling to other countries and how they purchased material and nonmaterial goods, or what are typically referred to as goods and services, such as basketballs and haircuts. Students living along the North Coast of the United States have probably traveled to Canada and have had experience with using U.S. dollars to purchase Canadian dollars.

As of July 18, 1996, the exchange rate for U.S. and Canadian dollars was .7324 and 1.3654. In this example, if an American were traveling to Canada, she could buy 1.3654 Canadian dollars for each U.S. dollars. Thus, the American traveler would feel as if she had "more money" in Canada, although the cost for goods and services might be elevated to reflect the exchange rate.

In contrast, a Canadian traveler to the United States would need to spend 1.3654 Canadian dollars for 1 U.S. dollar. The Canadian would feel as if he had "less money" but, at least along the border, the purchasing power of his fewer U.S. dollars would be comparable to the equivalent amount of Canadian dollars.

The reason for this is no mystery. Vendors on both sides of the border have similar costs to do business. The entire region, because of the market place forces at work, will have arrived at a juncture of the demand and supply curves for all goods and services. Whatever that particular price is can be expressed in either U.S. or Canadian dollars. This is why one finds signs along the boarder such as, "This vending machine does not accept Canadian money." For instance, soft drink machines increasing accept paper money. If a resident of Detroit could use Canadian dollars to buy a can of Pepsi that costs $1.00 is U.S. dollars with Canadian dollar bills at a vending machine designed to accept U.S. dollar bills, that resident would, in effect, be buying a Pepsi for $.75. The owner of the vending machine would have to protect herself against this by setting the machine so that it would not accept Canadian money.



In this variation each student is given $35.00 U.S. dollars. Let us pretend that this is the late 1960's and that the old gold standard is in place with one ounce of gold being worth $35. (Today the average price of gold is about $385 per Troy ounce, and the value of gold fluctuates according to the pressures exerted by the market in terms of demand and supply for gold and other precious metals, such as silver, which averages about $5.00 per ounce.) The students follow the same procedure as they did with the Mac/PC game except that this time they can purchase Francs, Marks, Pounds, or Yen. To begin with $1.00 Dollar = 4 Frances = 4 Marks = 4 Pounds = 4 Yen.

The one big difference in this version of the game is that the value of the Dollar remains at 1 whereas the value of the other four currencies can vary from 1 to n. The purpose of this restriction is to help students have a frame of reference. This is the same reasoning for using the old gold standard. As students become more astute, the value of both the dollar and gold can float according to the pressures of the market.

Each time someone buys any of the five currencies, a 1 is placed in the column of the currency purchased. At the same time a -.25 is placed in the column of the other currencies. This has the effect of gradually making the sought after money more valuable and the least purchased currency more attractive to buyers. Once any column achieves an absolute value of 3, the bank closes and the value of the currency is changed. If the 3 is a positive 3, then that currency drops by one unit.

For example, if three people buy Frances, then the value of the Franc in terms of dollars and the other currencies changes from 4 to 3. This means that the Federal Reserve Bank, for example, which is something like the bank in Monopoly, is no longer willing to give 4 Frances for 1 Dollar or 4 Marks or 4 Pounds or 4 Yen. The value of each Franc increases. If you had 3 Francs, you could buy 1 dollar or 4 Marks or 4 Pounds or 4 Yen. This is an example of deflation.

But, we have to make things interesting , so we look at the columns for the other four currencies to see which currency has been purchased the FEWEST number of times. This currency then is decreased in value by increasing it by 1 unit. In the above example, suppose that Pounds were purchased the least number of times. The bank, therefore, changes its exchange rate from 4 to 5 to make the Pound more attractive to buyers.

This is an example of inflation. It now takes more Pounds to buy goods and services. However, those who speculate in the currency market may be tempted to sell off some of their other currency to buy Pounds because you buy when it's cheap--and sell when it's more valuable. If a buyer buys up a bunch of Pounds when they are at 5 and waits till they drop to, say, 4, she can sell off the Pounds for dollars and make a profit.

The goal in currency investment is, of course, to get the largest return on your investment just as it with all investments.

Because we have frozen the dollar at one, we have to adjust the value of all currencies to the same degree when a 3 shows up in the dollar column. If the dollar has a +3, this means that it is in high demand. To make other currencies more attractive to buyers, you look for the two other currencies that have been purchased the least. BOTH OF THESE CURRENCIES ARE THEN DEVALUED BY ONE UNIT TO MAKE THEM MORE DESIRABLE.

For example, if the dollar has been purchased three times but the Yen and Mark only once, then the Yen and Mark would each be changed from 4 to 5.

To illustrate, on July 19, 1996, the value of the Franc expressed in Dollars was .1986. If one had one Franc, he only had the equivalent of .1986 Dollars. Likewise, one dollar was equivalent to 5.0345 Francs. If there were a sudden large upward increase in the demand for Francs by U.S. citizens, it is likely that sellers of dollars would receive fewer Francs per dollar.

In contrast, if there were a sudden increase by France for U.S. goods and nonmaterial goods, the Franc might be devalued to the point that French consumers--or anyone holding Francs as an investment--would need more Francs to purchase the same goods and services they might have previously been able to purchase before the shift of the demand curve.

France would be exporting Francs and importing U.S. goods. Countries strive to export goods and import the currency of the countries who are buying their goods. Countries end up in trouble when their citizens buy too many imported goods, especially when there are competing similar goods made and sold in their own country. This has the effect of exporting that country's currency to the countries that manufacture and sell the goods to that country. This means, then, that the citizens of the country who are importing, say, dollars, are able to buy more goods than the citizens of the United States who have exported their dollars in exchange for foreign goods.

In a very simplified way, when we speak of a shift of either the demand curve or the supply curve, we are saying that there has been a significant change in the behavior of consumers and suppliers beyond the typical day-to-day changes in the market price of any particular good or service, which is characterized by the intersection of the downward sloping demand curve and the upward sloping supply curve.


It is possible and desirable for students to learn how to use spreadsheet to perform the above calculations. These calculations are what one might typically find in a BASIC or FORTRAN program. They involve loops and IF,THEN statements.

In spreadsheet these formulas would be found listed as Nested If Functions. An example of what one of these formulas might look like would be as follows:

=IF(B2>=3,C2-1,IF(AND B2<=-3,C2+1)).

In this particular example, cell B2 would be the location on the spreadsheet where the number of transactions involving a particular currency were stored. Cell C2 represents the value of the currency, and let us assume the starting value is 4.

Let's suppose B2 represents Francs. At the start of a game, the value in B2 would be 0. Each time someone buys a Franc, the value in B2 increases by 1. Likewise, each time someone has purchased another currency, then 1 is subtracted from 0.

At some point in the game one of the two above possibilities is likely to occur. When that happens, then the value of the currency , which is indicated in C2, changes. If at least three people have purchased Francs, then the value changes from 4 to 3. This means that because of the demand for Francs, the bank is no longer willing to give 4 Francs away for 1 Dollar or 4 Marks or 4 Pounds or 4 Yen, for example.

In contrast, if the value in B2 reaches -3 or lower, then the opposite occurs in C2; that is, the value of C2 changes from 4 to 5. Because of the small demand for Francs, the bank wants to encourage people to buy Francs.

For most classroom situations it would be better to do all of the above calculations on the board. The most important point is to teach students about economics. Teaching students how to create and run formulas in spreadsheet is important, but that is another matter. Ideally, students should be "turned lose" to pursue spreadsheet on their own as well as coming up with their own unique variations. Encourage your students to improvise, to use what they have learned.


=IF(B2>=3,C2-1,IF(AND B2<=-3,C2+1)).

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