The Economics Simulation

by His Majesty, King Foldvary

The Players: The king, citizens, workers, merchants, bankers,
government officials, brokers, landlords.
The payoff: extra credits, real goods, learning, fun.

The king's laws:
1) Do not steal from the king.
Anyone who steals from the king will forfeit all gains and not get credit.
2) Obey the penalties set by the government.
3) Only official currency issued by the king is allowed.
4) Only students enrolled in the class are allowed to vote.
Those who break these rules are banished from the simulation and get no credits.

Immigration is legal unless prohibited by the citizens' government.
You may bring friends to the simulation.
Immigrant guests may participate but not vote.

The lands: poorland; middleland; richland.

Citizens may move to another district at any time unless restricted by law.

In Poorland, a self-employed person produces one good per period.
For merchants hiring labor, the production function is:
Q = 2W1 +[sum][i=2,n][1.5Wi]
in other words, the entrepreneur produces two units and each employee has a marginal and average product of 1.5 units of output (rounded up to units).
So for 2 hired workers, the output is 2+1.5+1.5=5.

In Middleland, a self-employed person produces two goods per period.
For merchants hiring labor, the production function is:
Q = 4W1 + [sum][i=2,n][3Wi]
So for 2 hired workers, the output is 4+3+3=10.

In Richland, a self-employed person produces four goods per period.
For merchants hiring labor, the production function is:
Q = 5W1 + [sum][i=2,n][5Wi]
So for 2 hired workers, the output is 5+5+5=15.

Poorland is rent-free.
Richland has one landlord, who collects rent from the merchants.

The unit of currency is the chocolate hug, which is convertible for $10.

Every citizen is given $10 to represent past savings.

Each citizen may only have one paid job through a round of production.
In a partnership, the main partner is a job, and the other partners are not jobs.

The King hires a Secretary of State and a Press Secretary.

Citizens choose the method of electing the government: either by district or by the whole class.

Citizens may propose constitutional rules, adopted by majority vote unless a rule resets this.

Landlords are selected by chance.

The elected council may be recalled by a petition to the king of 20 percent of the citizens, after which there is a new election.
A constitutional convention will be held on petition of 25 percent of the citizens.

Banks may change money at the king's bank.
Banks may issue private bank notes unless prohibited by law.

Citizens elect a council. The council elects a president.

These are jobs if paid, otherwise not jobs.

The council legislates laws, taxes, officials, spending, and the salaries of the council's officials.
Legislation can include protection from theft, public goods, taxation, borrowing, raffles, and redistribution.

Rounds repeat here:

Banks are established. Banks offer demand or time deposits.

Banks declare how much interest they pay on either.

Landlords declare the rent on merchants as a percentage of output, which must be equal for all merchants in the district.

Every citizen gets one labor certificate enabling him to work or own an enterprise.

The certificate simulates the scarcity of labor.

Merchants form firms to sell goods. They declare what good they will produce and sell.
Each merchant may only sell one type of good.

Merchants declare where they produce, how many workers to hire, what their wages are (including their own). Merchants may form partnerships, issue stock, or borrow from banks.

The king pays his secretaries.

Merchants hire labor, and pay their workers.
Merchants pay themselves a salary.

Merchants get goods.

Merchants may not consume the goods, but must offer them for sale to the public, including themselves from their salaries.

The sales price must be the same for all customers, including themselves.

The price may be changed at any time, but must be publicly declared.

Merchants pay rent.

Those who don't have other jobs are self-employed and produce one, two, or three hugs, depending on whether the location is poorland, middleland, or richland.

Government officials collect wage-income and property taxes, if any.

Merchants declare the price of their goods, posted on the board.

Consumers buy the goods.

The president distributes goods or cash to citizens as determined by the council.

If they voted to do so, government buys from merchants.

Government collects sales taxes, if any.

Government collects the tax on the rent, if any.

Merchants repay loans to banks, with interest.

Government collects the tax on the interest income of the banks, if any.

Merchants pay taxes on profits, if any.

Merchants pay dividends to shareholders or split profits with partners, if any.

Bankers pay interest on deposits.

Depositors pay taxes on interest and dividends, if any.

Depositors may withdraw or renew time deposits.

This completes the first round.

There is a new election for council.

New firms can be established.

For the next round, go to "Rounds repeat here."

At end of simulation, bank notes are redeemed at banks for cash.

Remaining cash is redeemed for chocolate hugs.

Consumers eat and enjoy their goodies.

Discussion and evaluation of the simulation.

Do the problem set on the simulation.