Experiment 6: Externalities   88-220  

The experiment was conducted on 11 November, 1998, at
Carnegie Mellon University by John H. Miller 

Some important notes:

To make the home work on positive externalities more interesting, alter Table D6.1
(p 190), Figure D6.1 (p 191), and Figure D6.2 (p 194). In the table, instead of having
5 buyers with Buyer Value $10, have 5 buyers with Buyer Value $20 (that is, alter
the "10" in the 4th row, 3rd column to a "20"). When you make this change, the
demand curves in the two figures need to be modified by eliminating the line
segments from (10,20) to (10,10) and (10,10) to (15,10), and replacing them with
line segments from ((10,20) to (15,20) and (15,20) to (15,10)---this will correct the
last segment of the demand curve. These changes have no effect on the discussion
that follows in the text. 

Questions on pp 205-207: All of these questions refer to the demand curve used for
Figure D6.1 (p 191). 

The last line on the first question asks for the student to draw a dotted red line to
show the supply curve with the subsidy. This question is then repeated as the first
question on the next page in a more elaborate form. Obviously, once will suffice. 

If your analysis indicates a range of equilibrium prices, then just
use the average value in this range for your calculations.

Pg. 207, last question.  This question may be clearer in the following
form:  Explain why it is that the subisdy on apple production increases total 
profits (including externalities and the cost of the subsidy) compared to the
market without any subsidy.

Pollution costs are $30 per transaction, not $15.

There were 34 buyers and sellers in the lab, and the pollution 
cost per lawn ornament sold was: $0.88235 (=$30/34) per person 
in the room (or a total of $30 per transaction).  

For you overall profit calculations, you can avoid annoying
rounding errors by using the fact that each trade costs $30 to
the market (versus 0.88 per person x 34 people  = $29.92).

Data for Table L6.1:
Distribution of Types of Agents
Sup. 	Seller	Num. 	Dem.	Buyer	Num.
Type	Cost	Market	Type	Value	Market
A	28	3	A	20	2
B	23	3	B	25	3
C	18	4	C	30	3
D	13	3	D	35	3
E	8	2	E	40	3
F	3	2	F	45	3

Data for Table L6.2: 
Transactions in Session 1-Last Round
(No Interference)
Trade	Price	BValue	SCost
1	30	35	13
2	30	40	23
3	36	45	28
4	25	40	3
5	35	45	28
6	30	45	8
7	21	35	3
8	30	35	18
9	20	20	8
10	29	30	18
11	29	40	28
12	24	25	23
13	25	30	13
14	20	25	18
15	25	30	13


Data for Table L6.3: 
Transactions in Session 2-Last Round
(With $30 Pollution Tax (paid by Sellers))
Trade	Price	BValue	SCost
1	40	45	8
2	40	45	3
3	38	40	8

Data for Table L6.4: (Synthetic)
Transactions in Session 3-Last Round
(Pollution Permits Required)
Trade	Price	BValue	SCost Permit_Price*
1	40	45	3	30
2	40	45	8	31
3	38	40	3	30
4	41	45	8	28

*Permit_Price is the last price paid for the permit.

End of file..................