Pearl Exchange

Demonstration

• Two students acted out a deal in front of the class.
• Only the buyer knew their maximum price, only the seller knew their minimum price.
• Question: Who won?
• Lesson: Both won. Buyers get consumer surplus, sellers get producer surplus.

Setup

• Half the class started with a “pearl”. They were sellers.
• The other half had no pearl. They were buyers.

The Rules

• Sellers and buyers had to negotiate a price.
• After each sale, sellers gave me the price.
• We tracked prices and looked for the best negotiators.

Four Rounds

Day 1

• Sellers knew their minimum price. Buyers knew their maximum price.
• Students had 5 minutes to trade.
• We looked at average prices and number of trades.
• Discussion: Why not charge or pay extreme prices?

Day 2

• Switched Roles: Sellers became buyers and buyers became sellers.
• Rule: No repeat partners.
• We compared prices to Day 1. They are converging.
• Questions:
  • What happens to prices if trading repeats many times? They keep converging to equilibrium
  • How did you negotiate a good deal?
  • What if oysters died and pearls got scarce?

Day 3

• A virus killed many clams. A third of sellers switched to buyers.
• Fewer sellers => less supply.
• Discussion:
  • Was this a change in demand (what buyers want) or supply (what sellers have)?
  • Who competed in this day? Buyers or sellers?
  • What if diamonds (a substitute) got cheaper?

Day 4

• Pearls are too expensive. Diamonds are cheaper. Many buyers left the pearl market.
• Discussion:
  • Who competed more here?
  • What happened to prices?

4. Takeaways

• Markets depend on scarcity, information, and competition.
• Prices shift with changes in supply and demand.
• Buyers and sellers both benefit when trade happens.