Sources of Students’ Misconceptions in Economics, pp. 5 of 15

Example Two: “So, my teacher says a change in price leads to a change in quantity demanded. Then later she says demand and supply determine price. So which happens first? The businessman sets the price first, right?”

In this example, a student expresses dissonance between theory and his perception of how prices are determined. Here, again, the student has based his thinking on his layperson interpretation of the real world. To him, the businessman sets the price since he has seen advertisements showing the prices of goods and services being sold by firms. “A change in price leads to a change in quantity demanded” is a statement of the law of demand which predicts that consumers would respond to a change in incentive, in this case, a change in price. The missing piece in the puzzle is the law of supply which relates to how producers vary the quantity supplied in response to a price change. Taking into account both demand and supply forces, the market mechanism determines the price. However, students’ prior knowledge tells him that the businessman sets the price and so the explanation of the price mechanism seems to him to be far removed from reality.

Layperson interpretations are deep-seated, often constructed by students in their childhood.  Aside from encouraging students to read widely, participation in experiments and simulations can help to give them experiences that challenge their lay ideas. For example, students typically cannot imagine how in a free market buyers and sellers arrive at the equilibrium price without any orchestration.  To help them experience the working of a free market, teachers can conduct  “trading” in classroom pit markets. 

An Inspiring Quote

"[Open-mindedness] includes an active desire to listen to more sides than one; to give heed to facts from whatever source they come; to give full attention to alternative possibilities; to recognize the possibility of error even in the beliefs that are dearest to us."

~ John Dewey, How We Think

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