Sources of Students’ Misconceptions in Economics, pp. 3 of 15

Table A: Student conceptions of allocative efficiency (based on Tang, 2003)

 

Students’ answer of what allocative efficiency means

Causes of misconceptions

Observations 

Percentage of respondents

1

When consumer welfare is maximized…..at equilibrium output in a market

Equating the concept of social welfare to consumer welfare

Only one side is considered: consumer perspective

4%

2

When firm’s profit is maximized (utilizing resources efficiently)

Lay conception of efficiency as efficiency of a firm in making profit

Only one side is considered: profit perspective

12%

3

At the firm’s minimum Average Total Cost

Lay concept of efficiency as technical efficiency

Only one side is considered: cost perspective

23.8%

4

In market, at Pe Qe where consumer and producer surplus is shared equally (i.e., equal distribution of social surplus of production)

Distorting concept of efficiency with the notion of equality or equity

Both sides of exchange considered; incorrect focusing since focus should be on efficiency not

23%

5

Clearing of the market i.e. no surplus and no shortage at the equilibrium output

Distorting the concept of efficiency with the concept of ‘equilibrium’

Both sides of exchange considered; incorrect focusing

4.7%

6

Where Marginal Social Benefit (MSB) is equal to Marginal Social Cost (MSC). At any other level, there will be a reduction of social surplus or deadweight loss (i.e., maximisation of social surplus of production)

Correct answer according to theory in textbook

Both sides of exchange considered; correct focusing

32.5%

An Inspiring Quote

"[Open-mindedness] includes an active desire to listen to more sides than one; to give heed to facts from whatever source they come; to give full attention to alternative possibilities; to recognize the possibility of error even in the beliefs that are dearest to us."

~ John Dewey, How We Think

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