Vernon Smith tested the supply and demand model in the laboratory and found that:
A) the results were not consistent with competitive price theory, as he expected.
B) buyers and sellers quickly converged on the predicted equilibrium.
C) the model may work in real life, but it does not work in the laboratory.
D) the buyers with the lowest willingness to pay bought the goods.

Question

Quizplus · Accepted Answer

Vernon Smith's laboratory experiments found that buyers and sellers quickly converged on the predicted equilibrium, indicating that the supply and demand model is consistent with competitive price theory. This suggests that the model is a useful tool for understanding real-world markets. Option A is incorrect as the results were actually consistent with competitive price theory. Option C is incorrect as the model was found to work well in the laboratory. Option D is incorrect as it contradicts the law of demand, which states that as price increases, quantity demanded decreases, and buyers with a higher willingness to pay are willing to pay more for the good.

Vernon Smith Tested the Supply and Demand Model in the Laboratory