Markets -- Cochabamba and the surrounding area are famous for their colorful markets. If you happen to be in town on a Wednesday or Saturday, you must stop in at La Cancha, Avenida San Martín between Tarata and Pulacayo, a huge market where you can find handicrafts, fresh produce, herbs, and just about anything else you could ever want.
In the valleys outside Cochabamba, there are also several towns that have authentic markets. Caixa Tours, Esteban Arze S-0563 (tel. 0104/4250-937), organizes day trips to these market towns. Tarata, in the Upper Valley, is a lovely historic village about 1 hour from Cochabamba; market day is Thursday. The market in Punata (about 1 1/2 hr. from Cochabamba) is considered to be one of the best and biggest in Bolivia. It's also one of the least touristy. On Sunday, you should head to Cliza for a taste of real Bolivian cooking. One of the specialties here is baked pigeon. Minibuses to these towns leave from the corner of Avenida Barrientos and Avenida 6 de Agosto; the trip costs Bs5 (65¢/35p).
Handicrafts -- Shopping at the local markets can be a chaotic experience. If you're looking for something more tranquil, you should stop by Vicuñita Handicrafts, on Av. Rafael Pabón 777 (tel. 0104/4255-615). Here you can shop for leather goods, tapestries, bags, and ceramic figurines (all handmade!) in the comfort of a private, uncrowded warehouse. For alpaca sweaters, I recommend Amerindia on Calle España 264.