Trading in a Pit Market

Introduction to Demand and Supply

You need a pen and a chair only.

Roles

• Graph Plotter - 1• Recorder - 1• Assistant Recorder cum Timer - 1• Players – 22• Observers – 2

Sellers• Number on your card represents the

cost you incur if you make a sale.• You must sell at a price higher or

equal to the cost reflected on your card

• Your earnings is the difference between your costs and your price.

• If you sell below your costs, your deal is invalidated by the recorders.

• To earn more, you need to sell as high a price as possible.

Buyers• The number on your card is the

highest price you can pay for the commodity.

• Your earnings is the difference between the transacted price and the number on your card.

• To increase your earnings, you need to pay as little as possible!

Buyers

• The number on your card is the highest price you can pay for the commodity.

• Your earnings is the difference between the transacted price and the number on your card.

• To increase your earnings, you need to pay as little as possible!

Trading

• Buyers and sellers to meet at the centre of the classroom

• Trading time is 5 mins for each cycle• Prices must change by multiples of 50 cents• Once you agree on a price, approach the front

to report on the transacted price• Buyer and seller to return the card to the

recording secretaries

Transactions

• When both agree on a price, go to the front immediately.

• Wait in line if there are people ahead• After your price is accepted by the recorders,

return to your seats and record your earnings.• Transacted Prices will be announced loudly

and reflected on the PP Slides.

•Are you ready?

•You have 5 minutes left

Transacted Prices – Period 1

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 2

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 3

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 4

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 5

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 6

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 7

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Transacted Prices – Period 8

Seller’s Cost(Black Card)

Price Buyer Value(Red card)

Discussion

Questions

• 1. Describe the price dispersion plotted. Explain the causes for the trend.

Questions

• 2. What does the Earnings represent?

• 3. Does the market always lead to the “best outcome” for buyers sellers?

Questions

• 4. Is market intervention necessary for the market to function properly? How to intervene?

Questions

5. What happens when a tax is enforced?

6. Further clarifications / questions?

Summary

Summary

• Role of price as rationing mechanism• Conditions that make price mechanism work– Self-interest– Information flow– Government laying down ‘ground rules’ for

competition– Others?