MRU4.3: Does the Equilibrium Model Work

Q8: Nobel laureate Vernon Smith, one of the founders of _______, first tested the supply and demand model in 1956. - Marginal Revolution University - experimental economics - microeconomics - behavioral economics

A: experimental economics

Q10: In addition to experiments like those that Vernon Smith conducted, which additional method does Professor Tabarrok discuss to test the demand and supply model? - Examining its predictions about what happens when the demand or supply curve shifts - Trusting economics professors who say that the demand and supply model works - Observing that all real-life markets are constantly in equilibrium - Advanced statistical tests of real-life price and quantity data

A: Examining its predictions about what happens when the demand or supply curve shifts

Q3: How well does the demand and supply model explain changes in the price of oil over time? - The model is useful in explaining major changes in the price of oil. - The model often predicts changes in the price of oil contrary to those that actually occur. - The model is useful in explaining every minor adjustment in the price of oil. - The model is not intended to be used to explain changes in prices in real-life markets.

A: The model is useful in explaining major changes in the price of oil.

Q5: In order to conduct his demand and supply model experiments, Vernon Smith assigned all of his students the roles of: - low-cost sellers or high-cost sellers. - low-value buyers or high-value buyers. - buyers or sellers. - market participants or government regulators.

A: buyers or sellers.

Q1: The demand and supply model predicted all of the following outcomes of Vernon Smith's experiment EXCEPT: - consumer surplus and producer surplus were equal. - the buyers with the highest values bought. - the sellers with the lowest costs sold. - all the gains from trade were exploited.

A: consumer surplus and producer surplus were equal.

Q6: In Vernon Smith's experiment, the distribution of cards with the seller costs determined the: - equilibrium price. - supply curve. - market quantity. - producer surplus.

A: supply curve.

Q7: The work of Vernon Smith _______ the demand and supply model; this is _______. - did not support; not what Smith expected - supported; not what Smith expected - did not support; exactly what Smith expected - supported; exactly what Smith expected

A: supported; not what Smith expected

Q9: How did Vernon Smith create realistic incentives for his students to maximize the gains from trade? - Their grades depended on whether or not they took the experiment seriously. - He paid them all a flat fee to participate and try their hardest. - He paid them an amount of money equal to the consumer or producer surplus they earned. - He explained to them how revolutionary this work in experimental economics was.

A: He paid them an amount of money equal to the consumer or producer surplus they earned.

Q4: Suppose you were a participant in Vernon Smith's experiment and you received a card that read, "Your value: $4." What does this mean? - This means that the most you should be willing to pay to buy the good is $4. - This means that the least you should be willing to pay to buy the good is $4. - This means that the least you should be willing to accept to sell the good is $4. - This means that the most you should be willing to accept to sell the good is $4.

A: This means that the most you should be willing to pay to buy the good is $4.

Q2: Was Vernon Smith able to predict expected equilibrium price and quantity in his experiment? - He was able to predict the equilibrium price, but not the equilibrium quantity. - No, because he did not know what the demand and supply curves should look like. - He was able to predict the equilibrium quantity, but not the equilibrium price. - Yes, because he knew what the demand and supply curves should look like.

A: Yes, because he knew what the demand and supply curves should look like.