Publication: Journal of Economic Education
Volume: 39, No. 2
Issue: Spring 2008
Pages: 206
Author(s): Nathan Sivers Boyce
Address (Principal Author):
Nathan Silvers Boyce
Assistant Professor of Economics
Willamette University
Smullin Hall, Room 310
900 State Street
Salem, OR 97301
Phone: (503) 370-6916
Email: nboyce@willamette.edu
Title: Exploring Economic Efficiency
URL: http://www.willamette.edu/~nboyce/Efficiency/main.htm
Descriptive Note:
Economic efficiency is one of the central, organizing
concepts in nearly all undergraduate economics courses, but introducing students
to robust notions of efficiency (in perfect markets) is challenging for at least
two reasons. First, some students struggle with even the basic mechanics of the
market model. Second, even students who master market mechanics often struggle
to achieve a useful and nuanced understanding of economic efficiency, such as
the close connection between efficient market outcomes and the original
distribution of income. Efficiency.xls is a simple, interactive tool to
help address some of these teaching challenges.
Efficiency.xls uses spreadsheets to model a simple world in which two
goods are produced and distributed to up to two types of consumers via perfect
markets. It helps users learn basic market mechanisms by allowing them to adjust
economic variables (e. g., prices, number of producers) and view the effects in
tables and graphs. The click of a button puts the economy into equilibrium (long
run or short run). More importantly, Efficiency.xls also prompts
discussions that lead to more nuanced understandings of efficiency. A dialogue
box allows users to compute, store, and compare the long-run equilibrium of this
economy under different assumptions about parameters such as preferences, costs,
population and/or the initial distribution of wealth. This quickly reveals the
connection between different underlying parameters and different, but all
efficient, outcomes. For example, concerns about the initial distributions of
wealth appropriately raise important questions about potential limitations of
market efficiency.
I have found that Efficiency.xls provides a concrete way to stimulate
discussion and more robust understandings of the meaning of market efficiency.