The Choice is Us: Monopolies process



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The Choice is Us: Monopolies

PROCESS

  1. Tell the students that you want to purchase a pen from somebody. Ask whether any of them has a pen that they would be willing to sell.

    1. Tell them to write down on a piece of paper the price that they would charge for a pen. Then ask them what they wrote about selling you a pen.

    2. 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?

    3. Now tell the students to imagine that one student in the class owned all of the pens in the classroom. Ask them how this scenario might influence the price of the pen and the quality of the pen being sold. Tell the students that this scenario is an example of a monopoly.

  2. Then shift the discussion: ask the students if they think it is fair for monopolies to exist. As the students share their opinions take notes on the board.

  3. Now tell students that they should learn how the U.S. government views economic monopolies. Pass out the worksheet entitled Standard Oil and the Sherman Anti-Trust Laws. Call on students to share their answers with the class.

  4. Ask the students how companies might try to become monopolies.

  5. Tell the students that for the next part of this assignment they should pretend they are newspaper editorialists. Ask the students to respond to the question below.

    1. Pretend that you are an editorialist, and write and editorial considering whether or not you believe that monopolies should be illegal.Top of Form

  6. 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. Use the Student Responses to Editorials as a handout.

  7. 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.

    1. Ask the students to complete the worksheet entitled Technology and Monopolies, working in groups of two to three.

    2. 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.

  8. Assign the students to develop a plan to create their own monopoly.

  9. Once they have created their plans, they should also analyze their plans to determine what effect the plans might have on the greater economy.

    1. To begin this step, ask the students, working in groups of two or three, to complete the worksheet entitled Creating a Monopoly. Invite students to share their answers with one another.

    2. 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.

The Choice is Us: Monopolies

The following link is to the student version of this lesson for students to follow online:



http://econedlink.org/686

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 Anti-Trust 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.



KEY CONCEPTS

Market Economy, Savers

STUDENTS WILL

  • Define monopoly.

  • Explain the market power that monopolies can exert.

  • Evaluate American laws prohibiting monopolies.

INTRODUCTION

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.

PROCESS

 To begin this lesson, tell the students that you want to purchase a pen from somebody. Ask whether any of them has a pen that they would be willing to sell. Tell them to write down on a piece of paper the price that they would charge for a pen. After the students have completed this short exercise ask them what they wrote about selling you a 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 hear 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.

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. After the students have completed this work, reconvene the class. Call on students to share their answers with one another.

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 question below.

Top of Form



  1. 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 they 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.

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. 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, 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.

CONCLUSION

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.



EXTENSION ACTIVITY

Assign the students to develop a plan to create their own monopoly. Having created their plans, 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.


Name: _________________________ Date: ____________

Student Responses to Editorials


Please read your group mate’s editorial and respond to it. Explain whether or not you think that your group mate supported his/her opinion well. Be sure to explain why you think this way.

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Standard Oil and the Sherman Anti‐Trust Act
In 1863, Samuel Andrews developed an effective way to change, or refine, oil into Kerosene. John D. Rockefeller, who had accumulated some wealth in the produce business, invested in Andrews’ business. Rockefeller played a significant role in helping Andrews buy additional refinery equipment and advising him on how to grow an effective business. Over time their business, called Standard Oil, became very successful. The company wanted to control all of the oil business in the United States. In order to gain additional customers and business, Standard Oil bought up many other oil companies. The company also cut the price of oil in half between 1865 and 1870 in order to attract new clients. Over time Standard Oil developed contracts with railroad companies that allowed it to ship oil across the country for very low prices. Through its efforts the company came to control all aspects of the oil industry, including the mining of oil, the transportation of oil and the refining of oil. Since Standard Oil controlled the oil industry they could now charge higher prices for oil and force customers to pay the prices. After all, if customers did not pay the prices charged by Standard Oil they did not get oil.
Soon, critics of Standard Oil Company, and other companies that had similar practices, protested that the practices were not fair. They argued that when companies held monopolies and/or trusts they could charge unreasonable prices for the products or services they sold. A trust is a combination of firms that have joined together for the purpose of reducing competition and controlling prices throughout a business or an industry.
In 1890, the United States Congress passed the Sherman Anti‐Trust act. It was named for United States Senator John Sherman. The act, based on the constitutional power of Congress to control trade between businesses that occurs across state borders, declared contract or business partnerships that sought to limit trade between customers and other companies illegal.

Monetary fines and prison time could be imposed for violating these laws.


Though Standard Oil Company has sought to create a profitable monopoly for itself, the company’s actions instead led to the outlawing of monopolies.


  1. What was John Rockefeller’s role in the Standard Oil Company?


  1. How did lowering prices help Standard Oil Company attract new customers?


  1. How did buying other oil company’s help Standard Oil gain control of the oil industry?


  1. Why do you think that the United States Congress prohibited monopolies and trusts?

Standard Oil and the Sherman Anti‐Trust Act Answers


In 1863, Samuel Andrews developed an effective way to change, or refine, oil into Kerosene. John D. Rockefeller, who had accumulated some wealth in the produce business, invested in Andrews’ business. Rockefeller played a significant role in helping Andrews buy additional refinery equipment and advising him on how to grow an effective business. Over time their business, called Standard Oil, became very successful. The company wanted to control all of the oil business in the United States. In order to gain additional customers and business, Standard Oil bought up many other oil companies. The company also cut the price of oil in half between 1865 and 1870 in order to attract new clients. Over time Standard Oil developed contracts with railroad companies that allowed it to ship oil across the country for very low prices. Through its efforts the company came to control all aspects of the oil industry, including the mining of oil, the transportation of oil and the refining of oil. Since Standard Oil controlled the oil industry they could now charge higher prices for oil and force customers to pay the prices. After all, if customers did not pay the prices charged by Standard Oil they did not get oil.
Soon, critics of Standard Oil Company, and other companies that had similar practices, protested that the practices were not fair. They argued that when companies held monopolies and/or trusts they could charge unreasonable prices for the products or services they sold. A trust is a combination of firms that have joined together for the purpose of reducing competition and controlling prices throughout a business or an industry.
In 1890, the United States Congress passed the Sherman Anti‐Trust act. It was named for United States Senator John Sherman. The act, based on the constitutional power of Congress to control trade between businesses that occurs across state borders, declared contract or business partnerships that sought to limit trade between customers and other companies illegal.

Monetary fines and prison time could be imposed for violating these laws.


Though Standard Oil Company has sought to create a profitable monopoly for itself, the company’s actions instead led to the outlawing of monopolies.


  1. What was John Rockefeller’s role in the Standard Oil Company?

John Rockefeller invested in the Standard Oil Company so that the company could afford to expand its operations


  1. How did lowering prices help Standard Oil Company attract new customers?

Standard Oil Company had more money than its competitors. Therefore, they were able to survive on less income. Standard Oil could afford to cut their prices. Other companies that lacked financial infrastructure could not afford to reduce their prices. Consequently, when Standard Oil cut their prices other companies’ customers purchased Standard Oil.


  1. How did buying other oil company’s help Standard Oil gain control of the oil industry?

Standard Oil Company not only bought the other companies’ oil, they also bought the other companies’ customers. As Standard Oil added to its customer base it increased its control of the oil industry

  1. Why do you think that the United States Congress prohibited monopolies and trusts?

Name: ______________________________ Date:___________

Technology and Monopolies


  1. List three businesses that can exist today, because of the World Wide Web that could not have existed before the advent of this technological communication system.


  1. How has the World Wide Web allowed supported the establishment and functioning of these businesses?



  1. Do you think that the World Wide Web has made it easier or more difficult to start new businesses? Explain your answer.



  1. Do you think that the World Wide Web has made it easier or more difficult for companies to establish themselves as monopolies? Explain your answer.

Name:______________________ Date: ________

Creating a Monopoly
In this exercise, you will develop a strategy for creating your own monopoly. You will then evaluate your strategy to consider how it would influence the rest of the economy. Please answer the following questions:
1. What type of a company would you like to create? Why would you like to create this type of company?

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2. Identify five things that you would do to make your company into a monopoly? Explain how each of these actions would help your company become a monopoly.

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3. Now explain the effect that each action would have on American citizens who did not directly work in your industry but instead relied on your industry for either a good or a service. State whether this effect would be positive or negative and why:

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