The Choice is Us: Monopolies
This lesson printed from:
Posted June 22, 2007
Author: Andrew Pass
Posted: June 22, 2007
Updated: February 11, 2008
This lesson introduces the concept of monopoly. It calls upon students to consider how monopoly power might affect the quality and price of goods and services offered to consumers. In light of what they learn about the history of trusts and the Sherman AntiTrust Act, the students write editorials, stating and explaining their views about laws prohibiting monopolies. Finally, students consider the effect that the Internet has had on the potential of companies to become entrenched as monopolies in our national and global economies.
- Define monopoly.
- Explain the market power that monopolies can exert.
- Evaluate American laws prohibiting monopolies.
This lesson is intended to help students will develop an understanding of economic monopolies. It introduces the Sherman Anti-Trust Act, which forbade the establishment and practices of economic monopolies in the United States. Working as newspaper editorialists, students explain whether or not they believe that monopolies should be prohibited in free market economic systems. The students also consider the ways in which today's technological infrastructure has influenced the capacity of companies to establish themselves as monopolies. Finally, the students create radio broadcasts explaining the nature of monopolies today.
Monopoly: This EconEdLink glossary provides a large number of definitions of economic concepts.
Monopoly Defined: This page provides a print-out for students that defines monopolies.
Monopoly Defined Handout
Standard Oil and the Sherman Anti-Trust Act: This EconEdLink worksheet provides information and questions for students to answer related to monopolies.
Student Responses to Editorials: This worksheet allows students to write if they felt that the editorial that they read was well-written or not.
Student Responses to Editorials
Edublogs: At this site, students and teachers can set up their own blogs and post their own editorials.
Technology and Monopolies: This worksheet helps students to understand how advances in technology are related to monopolies.
Technology and Monopolies
Creating a Monopoly: This EconEdLink worksheet asks students to develop their own monopoly.
Creating a Monopoly
To begin this lesson, tell the students that you want to purchase a pen from somebody. Ask whether any of them have a pen that they would be willing to sell. After the students have completed this short exercise ask them what they wrote willing to sell you a pen. Tell them to write down on a piece of paper the price that they would charge for a pen--using the pen. Also ask them to help you decide which pen to purchase: what information should you think about in making your decision about which pen to purchase? The students may suggest that you should think about which pen you want, and that you should try to purchase it for the lowest possible price. If the students do not suggest these ideas on their own, raise them for the students. Ask them to explain why these ideas make sense.
Now tell the students to imagine that one student in the class owned all of the pens in the classroom. And you have decided that you would buy a pen only from somebody in the class. Ask them how this scenario might influence the price of the pen and the quality of the pen being sold. Here you would like to thear the students state that if one person owned all of the pens, that person could charge more money for them and sell lower-quality pens. Ask the students to explain why this is true. They should recognize that since only one person was selling pens, this individual would not have to worry about either the price set by other people or the quality of the pens that other people were selling. Tell the students that this scenario is an example of a monopoly.
Now show the students the definition of monopoly and use it as a transparency. Ask the students to explain this definition in their own words. Then shift the discussion: ask the students if they think it is fair for monopolies to exist. Urge them to support their opinions. As the students share their opinions take notes on the board. Encourage the students to express ideas that both support and oppose monopolies.
Now tell students that they should learn how the U.S. government views economic monopolies. Invite them to read and complete the worksheet entitled Standard Oil and the Sherman Anti-Trust Laws , available here. After the students have completed this work, reconvene the class. Call on students to share their answers with one another. Click here to view possible answers to the Standard Oil and Sherman Anti-Trust Laws worksheet.
Ask the students why companies might to be monopolies. Help them understand that in a free-market economic system, people work to make money and companies exist to make profit: individual companies want to make as much profit as possible. Certainly companies would love to be monopolies if this meant that they could make greater profits, as it most certainly would.
Ask the students how companies might try to become monopolies. There are several possible answers. Companies might lower their prices in order to attract customers away from their competition. Companies might also try to produce the best product or service available at the lowest cost in order to attract new customers. Companies can also become monopolies by inventing new products and acquiring a patent to prevent others from copying their products. At times the government establishes monopolies when policy makers believe it is in the public's best interest. For example, municipalities typically grant monopoly status to electric companies since it would be too expensive for several electric companies to compete in the same community. When the government does establish monopolies, it typically regulates them to insure that they do not unfairly raise prices or lower quality.
Help the students understand that, without government regulation, companies that become monopolies may lower the quality of their products or services (perhaps by spending less money producing them), or they may raise the price of the goods and services that they sell. Ask the students why companies might do this. The students should recognize that companies can reduce quality or raise prices if they no longer face competition. As appropriate refer to the pen-selling example to underscore this point.
Introduce the point that the U.S. government seeks in various ways to foster competition. Help the students understand that while individual firms might want to be monopolies and enjoy the benefits of monopoly status U.S. government does not think that monopolies are good for our nation since monopolies can raise prices and lower the quality of goods and services.
Now introduce a writing assignment. Tell the students that for the next part of this assignment they should pretend they are newspaper editorialists. To clarify the task, ask the students what they know about the job of a newspaper editorialist. If anybody states that editorialists write opinion pieces for the newspaper, underscore that response. If the students do not know this, tell them. Remind the students, however, that editorialists cannot simply write their opinion and expect others to accept it. They must justify their opinions with high quality reasoning. Remind the students that editors write for the public. On this assignment, therefore, classmates will read one another's editorials, and comment on them, upon completion. Ask the students to respond to the interactive question below.
- Pretend that you are an editorialist, and write an editorial considering whether or not you believe that monopolies should be illegal.
After the students have completed this work, tell them to form groups of three. Explain that in these groups they should read one another's opinions and respond to them. They should state whether the agree or disagree with the writer's conclusion. They also should explain why they agree or disagree by commenting on how the writer uses facts and reasons to support his or her conclusion. The Student Responses to Editorials can be used as a handout. Be sure to encourage the students to read the comments that their group mates write about their opinions.
[NOTE: As an alternative to the above interactive you may choose to have the students work in a "blog" setting. Using the website Edublogs
or another "blog" site of your choice set up a "blog" and have the students create their editorials. Once each student has created an editorial have the students comment on one another's editorial piece so they can complete the group work portion of the class.]
Now remind the students that the U.S. government outlawed monopolies at the end of the nineteenth century. Suggest that much has changed in American society between the 1890s and today. Ask the students what they can think of that has changed. Among many other things, the students may mention an infusion of computer technology. They should recognize that not all of the innovations we take for granted today--the personal computer, the World Wide Web, e-mail, instant text messaging, podcasts, open-source materials, etc.--were widely available 10 years ago, let alone 110 years ago. Ask the students to complete the worksheet entitled Technology and Monopolies , working in groups of two to three. This worksheet asks the students to consider whether or not they think recent technological advances would make it easier and cheaper to start businesses. They are then asked how these advances might affect the ability of individual companies to establish themselves as monopolies. After the students have completed this work, reconvene the class and invite students to share their answers with one another. Lead a discussion in which students consider the influence that the technology available in recent years has had on firms seeking to establish themselves as monopolies. During this discussion, ask the students if they think it is important for the U.S. government to continue to still have a law prohibiting the establishment of monopolies. During this discussion, urge the students to support their opinions thoughtfully.
Tell the students that in order to demonstrate their knowledge of monopolies, they should develop a radio interview, working in groups of two or three, in which the participants explain the nature of monopolies, the ways in which today's technological infrastructure has influenced the establishment of monopolies and whether or not they think monopolies should be illegal today. The students might particularly enjoy making podcast interviews. If you choose to have them make podcasts, consider using Odeo, an excellent resource. You can link to the Odeo site from here . The Odeo website has very user-friendly directions. Students can even call into Odeo via telephone to create their podcasts. If you would prefer not to use podcasts, you can simply ask the students to develop presentations which they can perform before the class. If you choose to do the activity in this way, ask the students who are not performing to write down one idea they learn from each presentation.
In this lesson, students have learned about the role that monopolies play in economies. They have learned that monopolies are outlawed by the U.S. government. They have learned why companies would want to be monopolies -- i.e., because monopoly power sometimes enables companies to charge higher rates for their products/services, generating greater profit. In addition to considering their own perspectives on monopolies, the students have thought about their classmates' perspectives. Finally, the students have examined the influence of today's technology has on the ability of companies to establish themselves as monopolies.
Assign the students to develop a plan to create their own monopoly. Having created their palns, they should also analyze their plans to determine what effect the plans might have on the greater economy. To begin this step, ask the students, working in groups of two or three, to complete the worksheet entitled Creating a Monopoly . After the students have completed this worksheet, reconvene the class. Invite students to share their answers with one another. During this discussion encourage the students to consider how efforts to create a monopoly might negatively influence the quality of goods and services that would be available to consumers. Urge the students to support their ideas thoughtfully.