Economics Network CHEER Virtual Edition

Volume 9, Issue 3, 1995

EcoSim: An Innovative Tool for Teaching Economics

Anthony Davies
Wesleyan College

EcoSim is a teaching tool that brings together students from principles micro and macroeconomics, intermediate micro and macroeconomics, public sector economics, mathematical economics, managerial economics, and econometrics in a unified comprehensive economic simulation. The simulation was designed with the intent of providing students with a laboratory in which they could experience real economic forces, and as an application for most of the theory covered in undergraduate economics courses. Although the flexibility of EcoSim allows it to be used simultaneously in all of the courses listed above, the simulation works quite well when used with students from only one or two of these courses.

EcoSim provides students with a computer based not computer generated economy All prices, interest rates, employment and inflation rates, investment, production and consumption levels, are established by the players themselves as they interact with each other. Because the computer does not interfere in the economy, expectations, information, and risk behaviour play as important a role in EcoSim as they do in the external world.

EcoSim players are divided into two groups: company/ population players and government / central bank players. Each company / population player is issued a company and a group of people at the start of the simulation. While playing the role of a company, the player hires labour from other populations and purchases materials from other companies to produce a product which is then sold to other companies or to other populations. In the short run, players must determine the optimal combination of labour and materials to use in production and their profit maximizing output levels.

In the long run, players must determine the optimal combinations of capital (plant and equipment) and technology to acquire. Players can purchase materials and hire labour to produce products, buy and sell stock and bonds in other players' companies, speculate in commodities markets, invest in plant and equipment or research and development, move between industries, enter contractual agreements with other players, lobby the government, form cartels, and undertake entrepreneurial ventures. Each company player receives a grade for his company which is based on the percentage growth of the value of the company's stock portfolio from the beginning of the simulation to the end. While playing the role of a population, the player hires out workers to earn money which he uses to purchase goods for his population to consume. In the short run, players decide what combinations of various goods to consume and how much of their population's time should be devoted to work and how much to leisure. In the long run, players try to achieve the optimal population size by adjusting their population growth rates. Each player receives a grade for his population which is based on the cumulative utility the population achieves over the course of the simulation.

Government/central bank players act as the government and monetary authority for the company/population players. The government/central bank can impose price controls, sales quotas, income taxes, profits taxes, and sales taxes, issue subsidies, impose fines, issue transfer payments, produce public goods, alter the money supply, borrow and lend money, and enact laws and regulations. The political climate (i.e. democratic, totalitarian, or anything in between) and the economic climate (i.e. capitalistic, socialistic, or anything in between) are determined by the government as it attempts to appease its constituents.

The government/central bank players elect one from their group to serve as the Head of State. The Head of State has the sole power to enact fiscal and monetary policy and to enforce laws. The remainder of the government/central bank players are legislators and are assigned a number of company/population players as constituents. Each round of play, each company/population player casts a vote for or against the Head of State and for or against the player's legislator. These votes have no bearing on who holds government office, rather the votes reflect the company/ population players' satisfaction (or lack thereof) with the government. Each government/central bank player receives a grade based on the number of "for" votes obtained over the course of the simulation.

Because the EcoSim economy is not fabricated by the computer, but is the result of true economic forces resulting from the interactions of real consumers and producers, the economic data generated by the simulation provides a wealth of information and examples for econometrics students. Econometrics students can download the macro and micro data generated in the simulation, perform statistical analyses, and construct forecasts of commodity prices, output levels, inflation, gross domestic product, and any of another fifty economic time series and cross sectional data sets.

EcoSim is programmed for a VAX/VMS minicomputer. A windows version for use on a PC network is under development. The simulation typically runs twenty-four hours a day, seven days a week, over the course of several months. Students access the simulation as frequently or as infrequently as they deem necessary. On average, students spend thirty minutes per day on the computer and another fifteen minutes per day making deals, discussing strategy, and writing contracts with other players "offcomputer". The EcoSim software is almost fully self-sufficient. The only requirement it makes of the course instructor is that the instructor notify the computer when it is to advance the simulation to the next round of play (i.e. the next accounting cycle).

In its most simple form, an EcoSim game can include at least 15 company/population players from a single course and will run without a government / central bank. Because of the small number of companies, players will be most concerned with striking deals with other players, forming cartels and trusts, and establishing monopolies.

In its most complex form, an EcoSim game can include up to 500 company/population "teams" (each team can be comprised of several students from any of the following courses: principles micro/macroeconomics, intermediate micro/macroeconomics, mathematical economics, managerial economics, finance, management, and marketing), up to 100 government/ central bank players (while the government/central bank should be played by public sector economics or macroeconomics students, these students benefit from having other students from political theory, government, and public relations courses also play as legislators), and any number of econometrics students who will supply the players with statistical analyses and economic forecasts.

Because of the large number of players, there will be well developed stock and bond markets, significant trading in options and futures contracts, a respectable amount of contract litigation (usually mediated by the government), many laws passed regulating company and population behaviour, significant campaigning by the government/ central bank players and lobbying by the company/population players, and much entrepreneurial activity. Several universities have designed laboratory sessions based on EcoSim which run concurrently with the economics classes. While students play EcoSim on their own time outside of class, the laboratory sessions are times in which the students can come together in a more formal setting to make deals, discuss strategies, and perform analyses under the direction of the instructor. The EcoSim software is available free of charge. Students who use the software must purchase a manual and spreadsheet disk. The manual explains the rules of EcoSim and discusses player strategy in terms of economic theory. The spreadsheet can be used by the students to perform "what-if" analyses on their companies and populations. The spreadsheet takes information from the a student's company and population and computes measures of the student's total revenue, total cost, average variable cost, average fixed cost, average total cost, marginal cost, total product, average product, marginal product, marginal product per dollar, utility, marginal utility, and marginal utility per dollar. The spreadsheet also creates graphs of the players' product curves, indifference curves, and budget constraints.

The figures show selected screen displays from the EcoSim program. They are not fabricated, but are taken from an actual game with 54 company/population players and 20 government players. Figure 1 shows a selection of macroeconomic statistics as of the beginning of period 15 in the game. When a player attempts to purchase a commodity, he would see a screen as is shown in Figure 2. This screen is a listing of quantities and prices of a particular commodity offered by various players. The buyer can select which, if any, of the offers he desires and the computer will automatically perform the transaction, transferring the commodity to the buyer and the money to the seller. A typical voting return is shown in Figure 3.

The author may be contacted at the following address:

*Anthony Davies, Economics Department, Wesleyan College, Buckhannon, WV 26201, USA. (e-mail:

Figure 1: A selection of macroeconomic statistics at the beginning of period 15


Gross Domestic Product (current dollars)         $292,823
Real GDP (Period 1 Dollars)                      $239,200
GDP Deflator (Period 1 = 1.00)                       1.22
CPI Deflator (Period 1 = 1.00)                       1.39
Money Supply                                     $632,625
Private Debt                                      $57,000

Capital Stock                                     186,049
Labor Assigned to R&D                               5,175

RM Manufactured                                     3,033
HM Manufactured                                     6,890
LM Manufactured                                     7,964
FM Manufactured                                     8,268

RM Sold                                             1,869
HM Sold                                             2,990
LM Sold                                             5,208
FM Sold                                             5,158

Population                                        101,126
Labor Force                                        33,669
Employed Labor Force                               16,821
Labor Participation Rate                            37.l%

LM Consumed                                         2,911
FM Consumed                                         2,863

Average  Price of RM                               $38.02
Average  Price of HM                               $11.54
Average  Price of LM                               $12.85
Average  Price of FM                               $12.85
Average  Wage Rate                                  $3.55
Average  Interest Rate                              12.7%

Figure 2 Purchasing a commodity

SELL QUOTES: HM                                        * = private quote

No Price Ceiling.                                        No Price Floor.
No quota imposed.

Current Checkable Deposits:                   $23,831.50
Total Units Offered:                               3,986
Average List Price:                              $  5.99
Average Price Last Period:                       $ 11.54

Quote #     Quantity        Price per Unit       Total Cost       Seller

    1         370               $6.00              $2,220            7
    2         947               $5.15              $4,877            8
    3       1,350               $5.25              $7,088            9
    4         100              $15.00              $1,500           10
    5         460               $5.20              $2,392           28
    6         600               $6.45              $3,870           35
    7          50               $5.95                $298           40
    8          52              $12.00                $624           52
    9          57              $18.00              $1,026           54

Press Quote # to accept offer, X to abort, any other key for more quotes.

Figure 3: Voting Return


You are registered as casting the following votes for this period:

     Head of State:    110                                    ABSTAIN
     Your Legislator:  117                                    ABSTAIN

The vote this period for the Head of State is:

     Yes Votes                   No Votes                      Abstentions
     14   63.6%                  8   36.4%                     32   59.3%

The vote this period for your Legislator is:

     Yes Votes                   No Votes                      Abstentions
     1  100.0%                   0    0.0%                     3   75.0%

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