{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

This preview shows pages 1–4. Sign up to view the full content.

Market Simulation Analysis 1. Using the information provided on the buyer’s reservation prices and sellers’ costs in the market, graph the supply and demand curves. Write down the equilibrium price and quantity. Equilibrium Price 7 Equilibrium Quantity 28 Price Quantity Supply curve Demand curve equilibrium P 0 Q 0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 4 8 12 16 20 24 28 32 36

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
2. How do the typical prices and quantities in the first two rounds compare to the theoretical equilibrium price and quantity? How and why did the prices change across the first two rounds? Theoretical Round 1 Round 2 Price 7 6.70 7.10 Quantity 28 20 22 According to the market simulation data, we can verify that the equilibrium prices of both rounds are actually in the proximity of the theoretical equilibrium price. However, as we progressed from round 1 to round 2 and accumulated simulation experience, sellers and buyers became familiarized with how this simulation game was played out and price and quantity moved even closer to the theoretical level. At the same time, we have to acknowledge that there is still a discrepancy between the stimulation equilibrium quantity and predicted quantity. Such occurrence can be attributed to the fact that we had to trade our cards one by one in very short period of time. This point to the fact that such a system of trading can be rather ineffective. 3. Graph supply and demand for Round 3 when the sellers faced a per unit tax of \$2. Compare the theoretical equilibrium price and quantity to the results in Round 3 of the Market Simulation. Price Quantity P 1 Q 1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 4 8 12 16 20 24 28 32 36 Supply 1 Demand 1 P 0 Q 0 Supply 2
Base Theoretical Round 3 Price 7 8 7.60 Quantity 28 24 19 Imposing a \$2 per unit tax on the sellers causes the supply curve to shift from supply 1 to supply 2 (the demand curve is not affected here). Correspondingly, equilibrium price rises to \$8 and equilibrium quantity falls to 24 units. Since the elasticity of demand and supply is exactly the same, both sellers and buyers each bear \$1 of tax burden. Therefore, even though the tax is levied on sellers, buyers and sellers share the burden of the tax, and both are worse off.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}