Using Jeremy's Market in MarketSim to understand utility maximization
and is replicated here as part of the SERC Pedagogic Service.
The main purpose of Jeremy's Market is to give students an understanding of utility maximization. In the simulation students are in charge of a household and their goal is to maximize the household's utility. Utility is a function of the consumption of two goods and leisure. The simulation is divided into a number of periods. In each period the students must decide how much time to spend producing the two goods and how much time to consume as leisure. Once they have produced the goods, they can consume the goods or offer to trade the goods with other students. Students should use the concepts of production theory and comparative advantage as they make their decisions on what to produce and what to trade. They also need to use the concept of utility maximization to help they decide what to consume.
The simulation can be played either during a class period or outside of class.
Context for Use
Students will need to understand utility and production functions before the simulation is introduced.
If the simulation is played outside of class, the instructor will need to allocate at least 10 minutes of class time after each simulation period ends reviewing the results.
Description and Teaching Materials
The site provides a link to the simulation plus the materials the instructor will need to use the simulation in class. There is an instructors manual, information for the student and a powerpoint presentation that can be used to introduce the simulation to the class.
Teaching Notes and Tips
Students should be advised to check the simulation frequently so that they can take advantage of offers that are being made. Students should be warned against waiting until the period is almost over to try to make their decisions.
Students need to be reminded that when they make a trade the goods will go into their stock. They then have to take the action to consume the goods. Students often forget to take that action.
One strategy that students should follow is to make their offers in small quantities. They probably won't find someone who wants to buy a large quantity of either good.
Students could also be asked to write a brief paper explaining their strategy and why they selected that strategy.