Topic: Market Equilibrium (Double-auction experiment) Objectives: To let students experience how demand and supply model helps explain real-world markets, I e. how actual prices converge to the equilibrium values predicted by theories

Appendix 1 Instructions

1. 
   Tell them that their objective is to make as much gain as possible. To demanders, gain means the difference between their buyer value and the price. To suppliers, gain means the difference between the price and their seller cost. Keep in mind they should “buy low, sell high”.
   

2. 
   Tell demanders and suppliers that if they don’t buy or sell any apples, their gain is zero.
   

3. 
   Tell them that if they cannot find any chances of profitable trade, they are better off not trading at all than trading at a loss.
   

4. 
   Tell them that suppliers can make deals only with demanders and demanders can make deals only with suppliers. When a supplier meets a demander, they can negotiate about the price in any way they wish. They don’t have to reveal their seller cost or buyer value to their bargaining partner, but they can if they really want.
   

5. 
   Tell them that when a supplier and demander have agreed to trade, they should report to the market manager the trading price, buyers’ value and sellers’ cost. After this, they can leave the trading pit in the middle and return to their seat until the next round.
   

The market manager then puts the prices, buyers’ value and sellers’ cost on a spreadsheet where everyone can see them.

6. 
   Tell them not to be a “shy” person in order not to miss profitable trading opportunities, and not to be afraid to shout or gesture for attention, so that others know how much they are willing to pay or the price at which they are willing to sell. If students haven’t yet made a trade, they can keep an eye on the prices of previous transactions that are posted on the spreadsheet. Such information may give them some idea of what price to demand or what price to offer in their own negotiations. Also encourage them to try to find better chances of trade in different rounds of the game in order to search for the best deal, instead of sticking with the same trader all the way through, because their aim is to maximize gain.