A Market-Clearing Classroom Experiment

This paper describes a classroom experiment demnstrating the price mechanism and the clearing of the markets in an endowment economy. Participants receive random endowments of two goods they may trade in order to maximize a given utility function. A market-clearing price is reached when no mutually beneficial trades are possible. The outcome is truly endogenous with no reservation prices or willingness to trade imposed on the participants. A problem set allows the participants to study the equilibrium outcome analytically. The experiment can be used in intermediate micro- and macroeconomic courses.