The Cocoa Market

1. The Cocoa Market

2. Buyers/Sellers • Class will be divided in half (buyers/sellers) • Need one volunteer from each side to be a distributor for their side (32 buyer cards, 32 seller cards) *Shuffle them right away • Real world trades in tons we will use 1-unit.

3. The rest of the students • You will remain buyers/sellers for the rest of the simulation.

4. Sample Cards SAMPLE BUYER CARD You want to buy a unit of cocoa. You are willing and able to pay ______ for this unit, but you want to pay the lowest price you can. The lower the price you negotiate, the greater your gain. SAMPLE SELLER CARD You want to sell a unit of cocoa. This unit cost you ______ to produce, but you want to sell it for the highest price you can. The higher the price you negotiate, the greater your gain.

5. Buyers • Negotiate the lowest price possible • Card amount is max amount

6. Sellers • You want the most for the cocoa you are selling. • Negotiate high prices • Neither buyers or sellers can reveal the amounts on their cards.

7. Seller/buyer gain • The difference between the number on your card and the amount that you sold/purchased it for. • Track on the Score Sheet (see next slide)

8. Score Sheet

9. 3 Rounds • 5 minutes each • You can spend time negotiating big gains or go quick and try to get the most gains the quickest. • Any buyer can negotiate with any seller. Feel free to move on if you are not satisfied. • Whole dollar negotiations only (no $75.53)

10. Volunteers • Will track Transactions on the transaction record sheet. • You will give new cards after the transactions and keep their cards when done. • Winner (most gains) gets 12 tootsie rolls at the end.

11. Post Simulation discussion • In which round was the difference between the highest and lowest price negotiated the greatest?

12. What price did negotiations appear to be clustering around as the rounds went on or, in other words, what was the most negotiated price in the third round?

13. Why would buyers in early rounds pay prices much higher than $26, but not negotiate such high prices later?

14. Why would sellers in the early rounds sell for prices much lower than $26, but not negotiate such low prices later?

15. Why would sellers in the early rounds sell for prices much lower than $26, but not negotiate such low prices later?

16. When buyers stop accepting high prices and sellers stop accepting lower prices, it caused the prices to converge. Thus the interaction of sellers and buyers led to a price around $26 for a unit of cocoa.

18. Market Equilibrium Demand Supply Price per unit Number of units of cocoa