A Review of the Use of Simulations in Teaching Economics

Abstract

Since the 1960s, economists have experimented with incorporating computerized economic simulations into their classes. This article reviews the literature on the use of simulations and describes some of the simulations currently being distributed. In microeconomics, the simulations have taken three different forms: optimization exercises (in which students must maximize profits or utility given some fixed parameters), exploratory environments (in which students try to identify different aspects of a simulated economy), and market simulations (in which prices are determined endogenously). All macroeconomic simulations involve students’ selecting policy variables to try to control inflation, unemployment, and, in most cases, interest rates. Supporters of simulations, like proponents of classroom experiments, argue that simulations give students the opportunity to apply economic theory, but there have been very few controlled studies of the effectiveness of simulations. Increased support by publishers of software development may lead to wider use of computerized simulations in the near future.