Vernon Smith's Experimental Results Supporting Competitive Equilibrium (Figure 8.6)
The results from one of Vernon Smith's experiments, depicted in Figure 8.6, demonstrate how a market can converge to a competitive equilibrium. The experiment involved 11 buyers and 11 sellers, whose valuations established a theoretical equilibrium of six trades at a price of $2. Despite participants only knowing their own private valuation and the public price offers, the market outcome was close to equilibrium even in the first period. The observed trading patterns show a rapid convergence over subsequent rounds as participants learned more about supply and demand, and by the fifth period, transaction prices were clustered near the $2 equilibrium, with the number of trades matching the equilibrium quantity. This provides strong empirical evidence for the predictive power of the competitive equilibrium model.
0
1
Tags
Sociology
Social Science
Empirical Science
Science
Economics
Economy
Introduction to Microeconomics Course
CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
The Economy 2.0 Microeconomics @ CORE Econ
Related
Vernon Smith's Experimental Results Supporting Competitive Equilibrium (Figure 8.6)
An economist is designing a laboratory experiment to see how quickly a group of buyers and sellers can arrive at a stable market price. Which of the following procedural rules is most likely to help participants learn about the overall market conditions and converge on a price more efficiently?
Analyzing a Flawed Market Experiment
Purpose of Iterative Rounds in Market Experiments
Resource Allocation Under Pressure
Match each procedural rule for a laboratory market experiment with its primary intended effect on the market's dynamics or participants' behavior.
In a laboratory market experiment where all price offers and acceptances are made publicly, a buyer who is willing to pay a very high price for a good is strategically incentivized to make an initial offer that is significantly lower than their maximum valuation.
You are participating in a laboratory market experiment where all price offers and acceptances are made publicly. Arrange the following events in the logical sequence they would occur for a single successful transaction within one trading period.
Evaluating Experimental Market Design
Consider a market experiment where participants are allowed to trade in a series of rounds. Within each round, buyers and sellers publicly announce offers. When a deal is made, that specific trade is executed, and the two participants involved exit the market for the rest of that round. Assuming rational behavior, which pair of participants is most likely to complete the first transaction in any given round?
Intra-Round Price Dynamics
Competitive Equilibrium as a Nash Equilibrium
Competitive Equilibrium vs. Differentiated Product Markets
Vernon Smith's Experimental Results Supporting Competitive Equilibrium (Figure 8.6)
Hayek's Critique of Walras's General Equilibrium Model
Analysis of a Local Wheat Market
Consider a large, bustling farmers' market where numerous farmers sell identical Red Delicious apples. The market is currently in a state where the price has stabilized at $3 per kilogram, and at this price, the total quantity of apples farmers are willing to sell is exactly equal to the total quantity customers wish to buy. If a single farmer decides to raise the price of their apples to $3.50 per kilogram, what is the most likely outcome for that farmer?
Evaluating the Predictive Power of the Competitive Equilibrium Model
In a market with numerous buyers and sellers of an identical product, if the total quantity of the product that sellers wish to sell at the current price is exactly equal to the total quantity that buyers wish to purchase, this situation is, by definition, a competitive equilibrium.
Analyzing Market Conditions
Analyze the following descriptions of different market scenarios. Match each scenario with the term that best describes its state.
Consider a market for a standardized good that is initially in a state where the quantity supplied equals the quantity demanded. A sudden external event causes a large, permanent increase in the number of buyers, disrupting this initial state. Arrange the following events in the logical sequence that describes how the market adjusts to find a new stable outcome.
In a market that has reached a state where the quantity supplied equals the quantity demanded, individual buyers and sellers are unable to influence the market price through their own actions. Because they must accept the prevailing price, they are known as ______.
A city has dozens of independent coffee shops, each with its own unique blend of coffee, store ambiance, and customer service. While there are many buyers and sellers, each shop finds it can adjust its prices slightly without losing all its customers. Based on this information, which statement best explains why this market is NOT in a state of competitive equilibrium?
Evaluating Experimental Market Data
Theoretical Requirements for Competitive Equilibrium
Vernon Smith's Experimental Results Supporting Competitive Equilibrium (Figure 8.6)
Step-Function Demand Curve for Supporters
Consider a market for a specific used item with a small number of potential buyers and sellers. The maximum prices the five potential buyers are willing to pay are: $40, $35, $30, $25, and $20. The minimum prices the five potential sellers are willing to accept are: $15, $20, $25, $30, and $35. Assuming any buyer can trade with any seller, what is the maximum number of items that can be traded in this market?
A map of Karim's preferences shows his indifference curves for different combinations of daily free time and consumption. Points A (15 hours free time, $84 consumption), C (16 hours, $70), and D (17 hours, $60) all lie on the same indifference curve, IC₁. Point B (20 hours, $50) lies on a lower indifference curve, IC₀. Point E (18 hours, $75) lies on a higher indifference curve, IC₂. Based on this information, which of the following statements is true?
Market Demand with Discrete Buyers
In a small market for a particular collectible card, there are five potential buyers. Their individual maximum willingness to pay for the card is: $25, $22, $18, $18, and $12. If the market price for this card is set at $20, what is the total revenue generated from these five buyers?
A small, local market for a handmade good has four potential buyers and four potential sellers. The maximum prices the buyers are willing to pay are $12, $10, $8, and $5. The minimum prices the sellers are willing to accept are $4, $6, $9, and $11. For a transaction to occur, a buyer's willingness to pay must be at least as high as a seller's minimum acceptable price. Which of the following prices could be a price at which this market is in equilibrium (i.e., the quantity demanded equals the quantity supplied)?
Consider the following payoff matrix for two countries, A and B, deciding on their environmental policy. The payoffs represent economic benefits, where a higher number is better. Without communication, the equilibrium outcome is for both countries to choose the 'High Pollution' strategy, resulting in a payoff of (2, 2) for (Country A, Country B).
Payoff Matrix:
Country B: Low Pollution Country B: High Pollution Country A: Low Pollution (5, 5) (1, 6) Country A: High Pollution (6, 1) (2, 2) If the two countries are able to negotiate and form a binding agreement, which outcome are they most likely to achieve together?
The demand for a rare collectible in a small market is represented by a step-function. There are five potential buyers with the following maximum willingness to pay: Buyer 1 ($90), Buyer 2 ($80), Buyer 3 ($70), Buyer 4 ($60), and Buyer 5 ($50). If the market price for the collectible is set at $55, what is the total consumer surplus generated in this market?
In a small market for a specific type of concert ticket, there are four potential buyers with maximum willingness to pay of $60, $50, $45, and $30. There are also four potential sellers with minimum acceptable prices of $25, $35, $48, and $55. If the current market price for a ticket is set at $40, what is the state of the market?
Characterizing a Discrete Market
You are constructing a demand curve for a used textbook in a market with four potential buyers. Their maximum willingness to pay is as follows: Ana ($30), Ben ($50), Chloe ($20), and David ($40). Arrange the buyers in the correct sequence as they would appear from left to right on a step-function demand curve, starting with the buyer who is willing to pay the most.