Market Experiment Results.2

Market Experiment Results.2 - there was a transaction at...

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While the prices tended to be too high, the average price of each round converged to almost exactly the predicted equilibrium price of 2.00. Buyer’s surplus is reservation price minus contract price times ten for each completed transaction; seller’s surplus is contract price minus reservation price times ten. Predicted total surplus (sum of buyer’s surpluses and seller’s surpluses) over all four rounds was 300; the actual was 287.5, so only 12.5 (or 4.2%) short of full efficiency. In round one, there was a transaction at $2.55 by a seller with reservation price $2.50 instead of reservation price $2.00 (efficiency loss $5.00) and also a transaction at $1.45 by a buyer with reservation price $1.50 instead of reservation price $2.00 (efficiency loss $5.00). In round 4,
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Unformatted text preview: there was a transaction at $1.70 by a buyer with reservation price $1.75 instead of $2.00 (efficiency loss $2.50). Of the 24 total transaction, 21 (87.5%) were fully efficient. While not generating any loss in efficiency, in round 3, the buyer with reservation price $2.00 irrationally paid $2.10 (to a seller with reservation price $1.00). Our second experiment was a reduction in supply, to represent the effects on the gas market of reduced supply due to hurricanes. We want to know whether the experiment will generate price increases and quantity decreases of the right magnitudes according to theory. The reservation prices for buyers were {3.25, 3.00, 2.75, 2.50, 2.25, 2.00, 1.75, 1.50, 1.25, 1.00, 0.75} and the...
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