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 3 Record form
Table 1 Transactions in the 1st round

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1
2
3
4
5
6
7
8
9
10

Mean price =

Number of transactions =

Total consumer surplus =

Total producer surplus =

Table 2 Transactions in the 2nd round

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1
2
3
4
5
6
7
8
9
10

Mean price =

Number of transactions =

Total consumer surplus =

Total producer surplus =

Table 3 Transactions in the 3rd round

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1
2
3
4
5
6
7
8
9
10

Mean price =

Number of transactions =

Total consumer surplus =

Total producer surplus =

Table 4 Transactions in the 4th round

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1
2
3
4
5
6
7
8
9
10

Mean price =

Number of transactions =

Total consumer surplus =

Total producer surplus =

Appendix 4 Debriefing handout (blank)

Table A Sellers’ and buyers’ information

Seller’s cost	Number in market	Buyer’s value	Number in market
$A		$a
$B		$b
$C		$c
…		…
...		…
…		…

Note: teachers can freely choose appropriate values for buyers’ value/sellers’ cost

Now use the information in Table A to complete the demand and supply schedule:

(For example, at the price of $A, how many sellers are willing to sell their apples?)

Price	Quantity supplied (units)	Price	Quantity demanded (units)
$A		$a
$B		$b
$C		$c
…		…
...		…
…		…

Use the data above to draw the demand and supply curves:

The demand and supply theory predicts that :

The equilibrium price is ___________and quantity transacted is ___________.

Consumer surplus is and seller surplus is

Now compare these theoretical values with actual outcomes. What do you find?

Debriefing handout (an example)

Table A Sellers’ and buyers’ information

Seller’s cost	Number in market	Buyer’s value	Number in market
$18	2	$45	2
$23	2	$40	2
$28	1	$35	1
$33	1	$30	1
$38	1	$25	1
$43	1	$20	1

Now use the information in Table A to complete the demand and supply schedule:

(For example, at the price of $18, how many sellers are willing to sell their apples?)

Price	Quantity supplied (units)	Price	Quantity demanded (units)
$18	2	$45	2
$23	4	$40	4
$28	5	$35	5
$33	6	$30	6
$38	7	$25	7
$43	8	$20	8

Note: The above data are based on the experiment done in a F.4 class of 16 students. Teachers can freely select appropriate levels of prices and change the number of buyers and sellers according to their class size, without affecting the significance of the experiment.



The following data are the actual outcomes of an experiment done in a F.4 class of 16 students:
Round 1:

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1	30	23	40	7	10
2	30	23	45	7	15
3	30	18	45	12	15
4	20	18	40	2	20
5

Mean price = $27.5 Number of transactions = 4

Total consumer surplus = $60 Total producer surplus = $28
Round 2:

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1	30	28	40	2	10
2	31	18	45	13	14
3	30	18	35	12	5
4	30	23	40	7	10
5	30	23	45	7	15

Mean price = $30.2 Number of transactions = 5

Total consumer surplus = $54 Total producer surplus = $41

Round 3:

Transaction	Price	Seller cost	Buyer value	Seller’s gain	Buyer’s gain
1	31.5	28	45	3.5	13.5
2	29	23	35	6	6
3	30	18	40	12	10
4	31	18	40	13	9
5	31	23	45	8	14

Mean price = $30.5 Number of transactions = 5

Total consumer surplus = $52.5 Total producer surplus = $42.5

Appendix 5 Questions for debriefing
Regarding the concept of demand and supply:

1 . What is the relationship between the price and the total quantities buyers are

willing to buy? What economic law does it illustrate?

2. What do you notice about the shape of the demand and supply curve? How are they different from the usual ones we find in standard textbooks?

3. What is the relationship between buyers’ value and the demand curve? And the relationship between sellers’ cost and the supply curve?
Regarding the concept of equilibrium:

1. According to the demand-supply diagram, what are the theoretical values of equilibrium price and quantity?

2. How close are the experimental outcomes to the theoretical values predicted by demand-supply model in different rounds? Why?

3. Are there any transactions lying way outside the equilibrium price range? What does this answer tell you about the nature of “equilibrium”?

4. Look at the way price converges to equilibrium. What is it that makes price converge to a certain level? Is it because of your teacher’s control, your classmates’ ideas, or other factors at work?

5. Before the game, what would you expect how the prices and number of transactions should change? Are the outcomes consistent with your expectation?

Regarding the role of information in price convergence:

1. How would the market have behaved differently if the trading information had not been posted?

2. How did price information help to shape the behavior of buyers and sellers, or your behavior?

3. What is the trend of average prices throughout the game? What about the range of prices? How are they related to the availability of market information?

Regarding consumer surplus and producer surplus:

1. According to the demand-supply diagram, what are the theoretical values of consumer surplus and producer surplus?

2. How close are the experimental outcomes to the theoretical values predicted by demand-supply model in different rounds? Why?

3. “ In a perfectly competitive market, the maximizing behavior of individual buyers and sellers ensures an efficient resource allocation.” Do you agree? Explain with reference to your observation from the experiment.

Regarding trade:

1. 
   What are the most important thing(s) that make exchange possible between buyers and sellers?
   
2. 
   What determines the gains from trade for both parties?
   

General questions:

1. Did you enjoy the game? Why or why not?

2. Tell us three things that you have learned from this game/experiment.

3. Tell us one thing that you do not understand about this game/experiment, and you want to ask about.

4. 
   Have you found any real world markets similar to this game played? In what
   

ways are they similar?
(For those students who have never succeeded in finding a trading partner)

5. What did you feel during the game?

6. Why was it so difficult (if not impossible) to find a trading partner?

7. How could you possibly improve your chances of finding a partner?

References:

1. Jeffrey Parker, 1995. Using Laboratory Experiments to Teach Introductory

Economics. Department of Economics, Reed College.

2. Bergstrom, T.C. & J. H. Miller. 2000. Experiments with Economic Principles: Microeconomics. McGraw-Hill Companies: Singapore