Live from Evans Hall: Edgeworth Boxes and Production Possibility Frontiers
Edgeworth Boxes and Production Possibility Frontiers are two tools to help people grasp the excellences of a market economy in equilibrium. The Edgeworth box shows the possible gains from trade—and how a free market leads the economy to one of the possible allocations that exhausts those gains. The PPF shows how creating a price mechanism drives production to a Pareto-efficient point—and, in fact, to that particular Pareto-efficient point on the Pareto frontier that maximizes the value of output at the equilibrium price vector.
Question: Are either of these worth covering in an Econ 1 course?
I have, before, done the Edgeworth Box, and I have concluded that it is not worth covering (even though Rick Ericsson spent a bunch of time on it when I took Econ 1).
This year I did the PPF because Frank, Bernanke, Antonovics, and Heffetz do it. And I am concluding that it, too, is really not worth it.
It is better, I think, to: Start, on the supply side, with the idea that there are resources and property rights and people have capabilities and options. Then go through opportunity cost to the supply curve. And it is better, I think, to: Start, on the demand side, with preferences and incomes. Then go through willingness-to-pay to the demand curve. After that, back-and-fill and get to the value of the market system via consumer and producer surplus.
That, at least, is my current view…