Multimarket Equilibrium, Trade, and the Law of One Price

Susan K. Laury and Charles Holt

Southern Economic Journal, 1999, vol. 65, issue 3, 611-621

Abstract: This paper describes the setup of two classroom markets, one with a thin supply side and relatively higher prices. A comparison of the equilibrium price tendencies in the two markets helps students discover how to apply supply and demand analysis in this context. The introduction of speculators, who buy in one market and sell in the other, reduces or eliminates the price disparity. Class discussion can be focused on how “nonproductive” speculation can increase surplus measures of efficiency when price is permitted to convey the correct information about opportunity cost. Use: This experiment can be used in classes in the principles of economics, intermediate economics, or international trade to illustrate supply and demand analysis and the effects of inter‐market trade. In upper‐level classes, optimal bidding can be addressed as well. Time: Reading instructions and completing five trading rounds takes 30 to 40 minutes. Discussion lasts an additional 15 minutes. Materials: One deck of cards for up to 36 students, one copy of the instructions, and eight small blank slips of paper for each student.

Date: 1999
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https://doi.org/10.1002/j.2325-8012.1999.tb00181.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:65:y:1999:i:3:p:611-621

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