Which of the following is true about the process of price convergence to the equilibrium price in the double-auction markets implemented by Vernon Smith?
A) Prices will converge smoothly to the equilibrium price as long as the magnitudes of the consumer and producer surplus are approximately equal.
B) Prices will converge smoothly to the equilibrium price as long as the magnitude of the consumer surplus exceeds the magnitude of the producer surplus.
C) Prices will converge smoothly to the equilibrium price as long as the magnitude of the consumer surplus is smaller than the magnitude of the producer surplus.
D) Prices will tend to be higher than the market equilibrium price due to tacit collusion and signalling on the part of the sellers.

Question

Quizplus · Accepted Answer

In Vernon Smith's experiments on double-auction markets, it was observed that prices tend to converge smoothly to the equilibrium price, regardless of the initial conditions, and not necessarily dependent on the relative magnitudes of consumer and producer surplus. The key factor is the competitive bidding process on both the buying and selling sides, which drives prices towards equilibrium.

Which of the Following Is True About the Process of Price