Dr. Johnson is known for his engaging teaching methods. To illustrate the concept of willingness to pay and eBay auctions to his economics students, he devised a real-life experiment.
Dr. Johnson found a unique item in his attic: an old, beautifully crafted chess set that he had acquired many years ago at a flea market for just $30. He decided to use this chess set for his experiment.
He announced to his class that he would list the chess set on eBay with a starting bid of $35, just slightly more than his original purchase price. The students were encouraged to participate in the auction or observe as bystanders. The catch? The auction was part of a class project, and the final selling price would be discussed in their next class.
The students, intrigued by this hands-on learning experience, eagerly awaited the auction. Among them were two particularly interested students: Sarah, a chess enthusiast, and Mike, a collector of antique items.
Sarah, having played chess since childhood, saw the chess set as a perfect addition to her collection. Her emotional attachment to the game and the unique design of the set made her willing to pay up to $200 for it.
Mike, on the other hand, had an eye for antiques and believed he could resell the chess set for a good profit at an antique fair. His willingness to pay was thus influenced by potential resale value, capping at $120.
As the auction went live, bids began to come in. Sarah and Mike found themselves in a bidding duel. Sarah’s passion for chess drove her bids higher, while Mike calculated his potential resale profits with each bid.
In the final moments of the auction, the bid was at $110. Sarah, determined to own the set, placed a final bid of $150. The auction closed, and Sarah was the winner. She had acquired the chess set for a price lower than her maximum willingness to pay, but higher than the starting bid.
In the next class, Dr. Johnson discussed the auction outcome. The class analyzed how Sarah’s emotional attachment to the chess set influenced her willingness to pay, leading to a consumer surplus – the joy and satisfaction of acquiring the set for less than her maximum price. Mike’s bidding strategy, guided by resale value, highlighted how financial motives can differently shape willingness to pay.
Through this real-life auction, Dr. Johnson’s students learned about economic principles in a practical, engaging way. They saw firsthand how willingness to pay is a personal valuation that varies from person to person, influenced by individual motivations, financial considerations, and emotional connections. The chess set auction became a memorable lesson in the economics of everyday life.