Homework 1:
 
Due date: Jan 27

Questions 1-7 concern experiments 1.1 and 1.2:

1. Consider a price of *9.  How many buyers would profit from buying at 
this price, given their values?  How many sellers would profit from 
selling?

2. Repeat exercise 1 for the prices of *11, *19, *21, *29, *31, *39 
and *41.

3. Graph your findings, with price on the vertical axis and quantity on the 
horizontal axis.  (The text is helpful here!)  (The number of buyers 
associated with various prices is called demand, the number of sellers is 
supply.  Generally, it is not the number of buyers, but the total quantity 
demanded by the buyers, for each price that gives demand.)

4. What are the prices leading to excess demand (more buyers than sellers)?  
Excess supply?  At what price and quantity are the two in balance?

5. How did the actual trades compare in experiments 1.1 and 1.2?  Were 
there profitable trades not taken?  Were any trades unprofitable?

6. The net gain by a seller is called a profit.  What were seller profits 
in experiment 1.2?  Illustrate these profits on a graph.  (Hint: The seller 
earns the price minus the seller's cost.  Do you see seller's cost on the 
graph for question 3?  Add the price to this graph.)

7. The net gain to a buyer is called "consumer surplus."  Illustrate the 
consumer surplus on the same graph used to answer part 6.

Now consider experiments 1.3 and 1.4.

8. How has the supply changed?  How has demand changed?  Graph the supply 
and demand as you did for question 3 above.

9. How does the quantity and average price compare to the predicted 
(supply=demand) outcome?

10. In experiment 1.3, was there a circumstance where there seemed to be 
excess demand?  Did price tend to rise as the excess demand became obvious?  
Describe, in words, how you learned about the price at which you should 
trade in experiment 1.3.