Trading Game: Investigation on Supply & DemandShelly Bok

First Round: total 32 transactions

$5.40 $5.30 $5.20 $5.10 $5.00 $4.90 $4.80 $4.70 $4.60 $4.50 4$4.40 3$4.30 11$4.20 4$4.10 $4.00 9$3.90 $3.80 $3.70 $3.60 1$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 $4.50 2$4.40 2$4.30 19$4.20 6$4.10 5$4.00 8

$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 $4.40 2$4.30 26$4.20 11$4.10 1$4.00 6

$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 $3.70 18

$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 $4.90 8$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 $4.30 4$4.20 14$4.10 5$4.00 6

$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 $4.40 5$4.30 10$4.20 3$4.10 1$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 $4.50 3$4.40 3$4.30 19$4.20 9$4.10 3$4.00 12

$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 $4.50 2$4.40 7$4.30 24$4.20 16$4.10 3$4.00 17

$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.