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SIER Game
Goals:
1. Understand how various key
economic concepts may be linked
in a market oriented society;
2.
Understand how difficult proper
policy making may be.
1
Steps
1.
2.
3.
4.
5.
6.
Game format
Welfare: what makes voters happy?
The structure of the economy:
consumers, firms and government (=
teams)
What determines firm behaviour?
What determines consumer behaviour?
Which tools of economic policy do the
players have?
Examples: how do tools affect the
economy and, as a result, welfare?
2
1. Game Format




A world with 4 independent countries
Teams of 3 or 4 students form the governments
In period 0, all countries are equal
The countries are economically linked.
Period 1:
 All governments submit policies for period 1

computer calculates impact on economies and on
welfare levels
= results for period 1
= starting levels of period 2.

All governments submit policies for period 2, etc.

Final round = election time:
country with highest welfare level wins,
provided that its welfare > 100.00 (starting level).
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2. Welfare: what makes
voters happy?

Welfare starts at 100.00 and goes up if:
1. More real private cons. of goods + services
(each civil servant produces 1 service per
period)
2. Unemployment < 3%
 ideal: 0
3. Price changes are smaller than 1%
 ideal: no inflation or deflation
4. Balance on government account < 1% of
national income
 ideal: no surplus, no deficit
Note: balance government =
tax revenue – government spending
5. Surplus on balance of internat. payments
between 2 and 4
 ideal: + 3
Note: here, surplus on balance of internat.
payments = export – import.

If no country pursues any policy
 welfare constant (100.00).
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3. The structure of the
economy
Bedrijven
>
produceren producten
m.b.v. kapitaal en arbeid
>
doel: winstmaximalisatie
winsten gaan naar bedrijven
helft van de winsten worden geïnvesteerd
Sociale premies
Winstbelasting
Overheid
>
neemt ambtenaren aan
die gratis diensten leveren
>
betaalt sociale uitkeringen uit
aan mensen zonder inkomen
>
Koopt producten in het eigen land
Inkomstenbelasting
Importtarieven
BTW
Huishoudens
>
werken bij de overheid of bij bedrijven
>
economisch inactieven ontvangen een
uitkering
>
geven hun netto inkomen volledig uit
(zowel in thuisland als in het buitenland)
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4. What determines firm
behaviour?
Assumptions:






Firms act under perfect competition
All firms in a country make identical products
These products compete with foreign products
Firms hire labour and machines
How much do they invest ?
If net profits 
 1 period later: investments 
 2 periods later:
- more operational machines
- output 
How many products do they supply?
Depends on:
profit margin per product (price – labour
costs)
Note: labour costs = wage + social security tax
maximum output.
 The supply curve.
Note: when does it shift rightward?
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What determines
consumer behaviour?
Assumptions:
 Households do not save

Only households buy foreign products
(Government buys in home country, only)

If net income rises by 1%
 consumers buy 1% more of each product.

If the price of a product goes up by 2%
 consumers buy 3% less of this product
and more of the other products.
 The demand curve
Note: when does this curve shift rightward?
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The market
Prijs excl. BTW
vraag
S
1
aanbod
100
Hoeveelheid
Geen
Werkloosheid
8
5. The tools of economic
policy
Instruments
 economy changes
 welfare changes.
Available instruments:
 Value Added Tax (VAT)
 Income tax
 Profit tax
 Social security tax
 Import tariffs ( trade blocks)
 Government purchases
 Number of civil servants
 Wages paid by firms
 Wages of civil servants
 social benefit level
 Devaluation

Which tools make demand curve shift?
Which tools make supply curve shift?
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6. How do tools affect the
economy?
Example 1: Government buys more.
 Impact on welfare?
Prijs excl. BTW
vraag
S’
S
1
aanbod
100
Hoeveelheid
Geen
werkloosheid
10
Example 2: higher private wages.
 Impact on welfare?
Prijs excl. BTW
vraag
S’
S
1
aanbod
100
Hoeveelheid
Geen
Werkloosheid
11
Questions?
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