- Production: The Production and Gains from Trade program
lets people discover the benefits of trade based on
differences in comparative advantage, even if one trading partner has an
absolute advantage in the production of both goods. This game
can be used in discussion of production possibilities frontiers and
- Supply and Demand: The Call Market
and Double Auction programs
can be used to review the notions of supply and demand, perhaps
using the price-floor option to stimulate a discussion of
minimum wages (see the Micro Principles link).
- Circular Flow: The Macro Markets program sets up
a self-contained economy
with fiat money. Participants are either workers (who sell labor and purchase goods)
or firms (who purchase labor and sell goods). Frictions are introduced via
Cash-in-advance constraints and some decentralization in the labor market.
This program illustrates how the demand and supply of labor depend on the
real wage. The program provides workers and firms with updates of an
"economic report" that can be used to explain the measurement of
unemployment, real output, and wage and price indices. Increases in fiat money
can raise prices and affect real output in some cases.
- Present Value and Asset Price Bubbles: The
Limit Order Market program implements a stock market with two assets:
cash that pays interest and shares that pay randomly determined dividends.
The present value calculations implied by the interest rate cause the shares
to have a flat fundamental value. Price bubbles are typically observed
in this setting.
- Financial Crisis: The Bank Run program
puts participants in a world with two equilibria. Depositors earn high returns
when their bank does not fail, but there is a second equilibrium that is bad
for all (worse for those who do not withdraw in time). With multiple banks,
random withdrawals that stress one bank can produce a panic that
spreads to other banks, and a loss of confidence can make it more difficult
to return to the good equilibirum, even after structural solutions are imposed.
Vecon Lab - July 17, 2019