1. Pit Market Trading Student Instructions
EconApps 2.0
Instructions start with free markets with a later increase in demand, makes a brief comparison to communism, and then introduces price controls.
Pit Market Trading Student Instructions

2. Logging On Click EconApps 2.0 app Hold in portrait mode
Tap token for session
Fill out name and session password provided by your instructor
Enjoy the Economist quotes while you wait to start!

3. Pit Market Description
You will participate in a series of trading rounds in a Pit Market.
A pit market is similar to the trading floor or pit of the stock market where people are running around making trades.
At the beginning of each round you will be randomly be assigned the role of a buyer or a seller.

4. Buyer Role Screens
If you play the buyer role, you will be able to swipe between three screens: Your Earnings Screen, Your Wallet Screen, and Your Trade Screen

5. Buyer Role: Earnings Screen
Trade ticker Round earnings = combined widget value + tokens remaining You start off with a token endowment Your round earnings accumulate 
 Time left  Profits made per widget Profit = Value – Price  You buy Widgets (if you can profit)

6. Buyer Role: Wallet Screen
Trade ticker Token denominations You finger-drag a token from here  You can make change by tapping an empty token This will decrease
Time left  To there  This will increase (it’s your offer)

7. Buyer Role: Making Change on Wallet Screen
Tap empty token spaces to make change  Before
After 

8. Buyer Role: Trade Screen
Trade ticker A QR Code will be automatically generated Press the trade button first 
Time left  Your offer here

9. Seller Role Screens
If you play the seller role, you will be able to swipe between three screens: Your Earnings Screen, Your Wallet Screen, and Your Trade Screen

10. Seller Role: Earnings Screen
Trade ticker Round earnings = combined widget value + tokens collected You start off with a widget endowment Your round earnings accumulate 
 Time left  Profits made per widget Profit = Price - Value  You sell Widgets (if you can profit)

11. Seller Role: Wallet Screen
Trade ticker Token denominations You finger-drag a widget from here  Widgets left will decrease Or use the buttons 
Time left To the right  off the screen  Widgets offered will increase

12. Seller Role: Trade Screen
Trade ticker Your camera will activate Press the trade button first 
Time left  Your offer here  Scan the buyers QR code

13. What trades should I make?
As a Seller…
Trade Price should exceed Widget Value
Trade Profit = Trade Price – Widget Value
As a Buyer…
Trade Price should fall below Widget Value
Trade Profit = Widget Value – Trade Price

14. Approve or Cancel the Trade
Once a trade is initiated it can be approved or canceled.
Check the trade for accuracy with your verbal agreement!
To Approve both have to hit “Accept.”
To Cancel only one has to hit “Reject.”
A trade receipt drops down for both parties to approve or cancel.
Tap thumbs up to approve the trade. Thumbs down to cancel.

15. What happens after the trade?
As a Seller…
Less Widget(s)
More Tokens
Your earnings and wallet screens are updated
You can make another trade (if limit is not met)
As a Buyer…
More Widget(s)
Less Tokens
Your earnings and wallet screens are updated
You can make another trade (if limit is not met)
Now that your trade is complete the buyer has gained 1 Widget but lost some tokens and the seller has gained the tokens but lost the Widget.
Remember, all Widgets are converted to token values according to their “Widget Value” at the end of the round.

16. Market Equilibrium
There are market demand and market supply curves representing the widget values of all of the buyers and sellers, but you don’t know what they look like.
There is a market equilibrium price at the intersection of these curves, but you don’t know where the curves intersect.
The market demand and market supply curves can change in any round because markets are dynamic!

17. Rounds 1-4
Quantity axis units are actually increasing with the number of sellers. Equilibrium Quantity is actually 3*number of sellers.

18. Rounds 5-8 – Increase in Demand

19. Are we better off?
Measure difference between last round earnings and starting point
Buyer starts with 50 tokens
Seller starts with 4 widgets, worth 28 tokens if kept
Individual Consumer’s Surplus = Buyer’s Profit from a trade
Individual Producer’s Surplus = Seller’s Profit from a trade
Consumer Surplus = sum of Buyers’ profits for all trades
Producer Surplus = sum of Sellers’ profits for all trade
Total Surplus (Gains from trade) = Consumer Surplus + Producer Surplus

20. Gains from trade are maximized in a free market
Blue shaded area is consumer surplus for the market, and the red shaded area is producer surplus. The gains from trade = consumer + producer surplus is maximized at the equilibrium price of 11 tokens. Assuming that people will only trade if they can make a profit, any other price would result in fewer trades and less consumer surplus.

21. Are we better off? Let’s total up our earnings for the last round.
Maximum Gains From Trade = [( )*B + ( )*S] = 16*B+16*S
Actual Gains from Trade = Total Class Earnings - (50*B + 28*S) =
Market Efficiency = Actual/Max*100% =

22. Free Markets vs. Communism
Suppose instead we had Communism: Complete physical redistribution of tokens and widgets.
Each Buyer’s earnings = [( ) + 25] = 59
Each Seller’s earnings = [(4 + 6) + 25] = 35
Total Class earnings = 59*B+35*S =
Compare with total class earnings for the last round.
Max Possible Class Earnings = Endowments + Maximum Gains From Trade = (50*B + 28*S) + [( )*B + ( )*S] = 66*B+44*S
Actual losses from communism =
Why do command economies fail?
Knowledge and incentive problems

23. Price Controls
You will have the opportunity to see your widget values and role as buyer or seller prior to your voting on a price control.
Buyers will vote for a price ceiling
price <=ceiling
Sellers will vote for a price floor
price >=floor

24. Price Controls Random Dictator Rounds
At the beginning of each round you will be told whether you are a buyer or seller, your Widget valuations, and asked to vote on your most preferred price control.
A vote will be randomly selected (using a random # generator) to dictate the price control.
Once a price control is set illegal trades will receive a message like this 

25. Takeaway Lessons
Free Market Exchange creates more Surplus than Communism.
Free Market Exchange creates more Surplus than market exchange under price controls.
The Invisible Hand
Free Markets align Self-interest with the Social-interest
Price discovery and market equilibrium is an emergent order, little information is required