 Trading Game: Investigation on Supply & Demand Shelly Bok

First Round: total 32 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.504 $4.403 $ $4.204 $4.10 $4.009 $3.90 $3.80 $3.70 $3.601 $3.50 $3.40 $3.30

Second Round: total 42 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.502 $4.402 $ $4.206 $4.105 $4.008 $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

Third Round: total 46 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.50 $4.402 $ $ $4.101 $4.006 $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

Analysis of the first three rounds  Market is stabilizing itself with an equilibrium price  We see that the graphs are less spread and more center-ed

Fourth Round: total 18 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.50 $4.40 $4.30 $4.20 $4.10 $4.00 $3.90 $3.80 $ $3.60 $3.50 $3.40 $3.30

Price Ceiling  Prices can’t go up  Shortage of Supply  Buyers want to use this opportunity of price decrease to buy buy buy

Fifth Round: total 8 transations $5.40 $5.30 $5.20 $5.10 $5.00 $4.908 $4.80 $4.70 $4.60 $4.50 $4.40 $4.30 $4.20 $4.10 $4.00 $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

Price Floor  Price can’t go down  Surplus of Supply  Buyers do not want to buy anymore because of the large price.  Therefore, the transactions decreased from 18 to 8

Sixth Round: total 29 transations $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.50 $4.40 $4.304 $ $4.105 $4.006 $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

50¢ tax on buyers  Demand decreases  Graph is skewed left : preference to lower price  because buyers have the burden of tax

Seven Round: total 19 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.50 $4.405 $ $4.203 $4.101 $4.00 $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

50¢ tax on sellers  Supply decreases  Graph is skewed right: preference to higher price  Because the sellers have the burden of tax  Even though the buyers are “helping” the sellers, we see the number of transactions to decrease from 29 to 19

Eighth Round: total 49 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.503 $4.403 $ $4.209 $4.103 $ $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

Market’s normal behavior resumes  Back to the robust search for equilibrium

Ninth Round: total 69 transactions $5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.502 $4.407 $ $ $4.103 $ $3.90 $3.80 $3.70 $3.60 $3.50 $3.40 $3.30

Final Analysis  Even without communication, participants now acknowledge that the equilibrium price is 4.30$.  The easiest price to negotiate  Therefore we see our mode as 4.30$  Equilibrium is automatic

Game rules for a Supply and Demand Graph!  With the existing game rules, the supply and demand graph cannot be exactly drawn.  Only a graph with an equilibrium price can be drawn (the other transactions that are not at the eq. price will be ignored)  There is no data for quantities higher than “1” quantity.  In order to have a supply and demand graph, quantities cannot be “1.”  Sellers have to sell more than 1 quantity supplied and buyers have to buy more than 1 quantity demanded.  If the instructor gives the amount of quantities buyers and sellers have to buy and sell, we will get a graph that is accurate with not only equilibrium price but also the other transactions made.