ASSIGNMENT 1

Deadline: 20/04/2021 @ 23:59 (upload via Canvas)

Group number: 30
Names: Nick van Zundert, Fay Vriens, Stef van Wuijckhuijse, Florez de Leeuw
SNRs: 2042368, 2048324 ,2060476, 2065278

Problem 1 – Supply & Demand Treatment 1 {2 points}

In treatment 1 of the online experiment, the distribution of seller costs and buyer values was as
follows:

Sellers costs Number in market Buyer Value Number in market

$20 10 $40 15
$30 15 $25 15

Use this information provided to draw the supply and demand curve for the good in Treatment 1 of
the experiment (Hint: for every price, determine how much of the good is being supplied and
demanded, depending on the distribution of different types of suppliers and demanders in the market).

50

SC

40

30

$
20

10 DC

0 5 10 15 20 25 30 35

N=participants

1
Problem 2 – Prediction vs. Outcomes Treatment 1 {3 points}
Suppose that the following trades were realized in treatment 1 of the experiment:

Deal # Price ($) Seller Cost ($) Buyer Value ($)

1 30 20 40
2 35 30 40
3 22 20 25
4 32 30 40
5 30 20 40
6 32 30 40
7 34 30 40
8 31 20 40
9 35 30 40
10 24 20 25
11 30 20 40
12 32 30 40
13 28 20 40
14 25 20 40

Complete the following table to compare the experimental results described above with the theoretical
predictions in Treatment 1.

Competitive Experimental
Theoretical Outcome
(problem 1) (problem 2)
30 30
Mean Price
15 14
Number of Transactions
Number of low/high cost sellers low ($20): 10 low ($20): 8
making a deal. high ($30): 5 high ($30): 6
Number of low/high value low ($25): 0 low ($25): 2
buyers making a deal. high ($40): 15 high ($40): 12
150 110
Consumer Surplus
100 80
Producer Surplus
100% 76%
Market Efficiency*
*Defined as the actual profits of market participants expressed as a percentage of
the highest possible of profits that could be achieved.

2
 Problem 3 – Supply & Demand Treatment 2 {2 points}
In treatment 2 of the experiment, the distribution of seller costs and buyer values was as follows:

Sellers costs Number in market Buyer Value Number in market

$10 15 $40 15
$20 10 $25 15

Use this information provided to draw the supply and demand curve for the good in Treatment 2 of
the experiment (Hint: for every price, determine how much of the good is being supplied and
demanded, depending on the distribution of different types of suppliers and demanders in the market).

50

45 SC

40

35

30

$ 25

20

15

10

5 DC

0 5 10 15 20 25 30 35 40

N=participants

3
Problem 4 – Prediction vs. Outcomes, Treatment 2 {3 points}
Suppose that the following trades were realized in treatment 2 of the experiment:

Deal # Price ($) Seller Cost ($) Buyer Value ($)

1 30 20 40
2 28 20 30
3 25 20 40
4 30 20 40
5 25 20 30
6 25 10 40
7 38 20 40
8 28 20 30
9 15 10 30
10 30 20 40
11 30 10 40
12 35 20 40
13 15 10 30
14 25 20 30
15 25 10 40
16 33 20 40
17 28 20 30
18 25 10 40
19 30 20 40
20 18 10 30
21 25 10 40
22 25 20 30

Complete the following table to compare the experimental results described above with the theoretical
predictions in Treatment 2.

Theoretical Experimental
Prediction Outcome
(problem 3) (problem 4)
25 26,7
Mean Price
25 22
Number of Transactions
Number of low/high cost sellers low ($10): 15 low ($10): 8
making a deal. high ($20): 10 high ($20): 14
Number of low/high value low ($25): 15 low ($25): 9
buyers making a deal. high ($40): 15 high ($40): 13
225 202
Consumer Surplus
275 208
Producer Surplus
100% 82%
Market Efficiency*
*Defined as the actual profits of market participants expressed as a percentage of
the highest possible of profits that could be achieved.

4
Problem 5 – Conclusions from experiment {2 points}
Based on the experimental results, would you say that the supply and demand model introduced in
Lecture 1 is an adequate model to describe behavior of agents in competitive markets? Briefly explain
why (not).

Nee, want als het supply en demand model adequaat was zou de markt efficiëntie dichter bij 100%
liggen. In de resultaten van de experimenten was de markt efficiëntie 76% en 82% en dat is in onze
ogen niet dicht genoeg bij 100% om het adequaat te noemen.

Problem 6 – Theory {2 points}

Suppose the competitive market for bicycles in Pedal City is described by the demand curve P = 1800
– 2Q, and the supply curve P = 4Q.

a) If the price for bicycles is 800, how many bicycles will be supplied and how many
bicycles will be demanded? Is the market in equilibrium? Explain.

Nee, want met P=8oo. Demand curve Q= 500 en supply curve Q= 200. Er is dus meer vraag
dan aanbod en dus geen evenwicht.

b) Calculate the equilibrium price and quantity of bicycles.

1800-2Q = 4Q

6Q = 1800

Q = 300

P = 4 X 300

P = 1200

5
Due to a change in tastes of consumers, the demand for bicycles increases. The new demand function
becomes P = 2400 – 2Q.

c) Determine the new equilibrium quantity and price on the bicycle market.

2400 – 2Q = 4Q

6Q = 2400

Q = 400

P = 4 X 400

P = 1600