Results from Experiment 3

The Sales Tax Experiment

Session 1

In the first session of this experiment, there is no sales tax. The supply and demand curves are shown in Figure 3.1. The competitive equilibrium price can fall anywhere in the range from $23-$25.

Figure 3.1

Figures 3.2 and 3.3 show the distribution of mean transaction prices across the classes in the first and second round of Experiment 3. (Many classes reported only the round 2 results and not the round 1 results. Thus we have many more observations for round 2 than for round 1.

Figure 3.2

Figure 3.3

The frequency distributions of transactions prices over the entire population of students taking the course is shown in Figure 3.4 for rounds 1 and 2. Prices seem to be converging quite well toward the equilibrium range, with some persistent trading at $20, which is slightly less than the equilibrium price.

Figure 3.4

Session 2

In Session 2, the sellers must pay a $15 sales tax. This shifts the supply curve upward by $15 from its position in Session 1. Figure 3.5 shows the supply and demand curves for a class of 47 students. The equilibrium price will be $33 for classes of all sizes.

Figure 3.5

Figures 3.6 and 3.7 show the distribution of class mean prices for rounds 1 and 2 of Session 2.

Figure 3.6

Figure 3.7

Figure 3.8 shows the distribution of transaction prices in Session 2. The competitive equilibrium price in this session is $33..

Figure 3.8

Session 3

In Session 3, the sales tax is paid by buyers. Figure 3.9 shows the demand and supply curves for this session.

Figure 3.9

Figures 3.10 and 3.11 show the distribution of mean prices across classrooms in Rounds 1 and 2 of Session 3.

Figure 3.10

Figure 3.11

Figure 3.12 shows the frequency distribution of transaction prices in the two rounds of Session 3.

Figure 3.12

Quantities

Figure 3.13 shows for each round of each session, the percentage of classes for which the number of transactions was less than, equal to, or greater than the competitive equilibrium quantity.

Figure 3.13