Wonder Woman fights a monopoly

objectives

K-8: Understand the impact of a monopoly on a market.
9-12: Properly construct a graph of the market when supply falls.
Undergraduate: Properly construct a graph of a monopoly.

time needed

20-25 minutes.

materials

The ability to show the comic panels Wonder Woman and the milk conspiracy.

overview

Superheroes aren’t always fighting intergalactic bad guys. Sometimes, they have to stand up for those who cannot protect themselves. In this set of panels, we find Wonder Woman, aka Diana Prince, working undercover in an attempt to find out why the price of milk is so high. It turns out that International Milk Co. has been buying up the supply trying to corner the market. (The rest of the story is that International Milk is a cover for a secret Nazi operation intent on depriving U.S. children of milk. If kids don’t drink milk, they will be weak and easier for the Nazis to defeat. You may want to remind your students that this comic was published in 1942, during World War II.) It sounds like a crazy story, but it is a great set up for graphing markets and monopolization.

This story can help younger students visualize how market price changes when supply changes. More advanced students can apply their understanding of monopoly to a situation outside the confines of a textbook. If they can analyze this scenario successfully, they not only get the idea that monopolies are bad, but they understand why.

action


Show students the comic panels, and ask them what they think.

K-8:
You are likely to get a lot of opinions on this. A lack of fairness will be high on the list. Try to focus attention on why this is unfair from an economic point of view. The problem results from one firm controlling the entire supply of a product. Also note what happens when the milk is dumped. This reduces the amount available in the market and will cause prices to rise. Focus on the intuition rather than the graphs.


9-12:
Talk about the intuition as with the K-8 grades, but now ramp up the analysis. Presuming you have covered demand and supply, ask the students to draw a graph for the milk market.

Now, how does the market change as a result of International Milk’s activity? In particular, if milk is poured down the drain, answer the the following:
Which curve shifts?
Which direction does it shift?
What happens to price and quantity?

Answers:
The supply curve shifts.
It shifts to the left, because supply falls.
The new price is higher and the new market quantity is lower.

The figure below shows the market as International Milk engages in market manipulation. The original equilibrium is a quantity of Q1 and a price of $0.23. The new equilibrium occurs at a lower quantity, Q2, and a higher price of $0.26. (NOTE: The price of $0.26 is mentioned in the comic. Any price lower than this is acceptable for the original market price.) The key result for students to understand is that when supply falls, the price rises.

To wrap this up, and to lead into a discussion of monopoly, ask students what they think the objective of this nefarious action is?  If they have read the comic, they should respond with something akin to: they want to control the market. Good students will recognize the attempt to form a monopoly.

Undergraduate

STEP 1: ask the students to draw graph for the milk market.

Now, how does the market change as a result of International Milk’s activity? In particular, if milk is poured down the drain, answer the the following:
Which curve shifts?
Which direction does it shift?
What happens to price and quantity?

Answers:
The supply curve shifts.
It shifts to the left, because supply falls.
The new price is higher and the new market quantity is lower.

The figure below shows the market as International engages in market manipulation. The original equilibrium is a quantity of Q1 and a price of $0.23. The new equilibrium occurs at a lower quantity, Q2, and a higher price of $0.26. (NOTE: The price of $0.26 is mentioned in the comic. Any price lower than this is acceptable for the original market price.) The key result for students to understand is that when supply falls, the price rises.

STEP 2: Alfonso de Gyppo, President of International Milk, tries to explain his dilemma to Wonder Woman. His costs are very high as he tries to buy up the milk (clearly admitting to a violation of anti-trust laws). To analyze International Milk’s monopoly, have students draw a graph to represent this situation. Ask them to show what happens as the marginal costs of production increase due to the higher price International Milk pays to buy up the supply. Show how this leads to higher market prices and lower quantities for milk relative to the competitive market. A version of this graph is shown below:

NOTE: The marginal cost curve is flat to simplify the exposition. The competitive result occurs where MC = D. This is is where firms are pricing at marginal cost. The output where P = MC is the competitive output – Qcom. The price of $0.26 is mentioned in the comic and is used for the monopoly price. Any price lower than this is acceptable for the competitive market. When the marginal cost rises and International Milk achieves it’s monopoly position, it uses the profit maximizing rule of MC= MR. From there, drop down to the quantity axis to find the lower monopoly output – Qmon. The $0.26 monopoly price is found by going up to the demand curve and over to the price axis.

Make sure students explain what is in their graph in a few sentences. Drawing the graph is a nice skill, but to make sure students know what they are doing and not just reproducing something they find in a book or online, they should be able to offer a written explanation.

discussion

K-8
Question:
Why does the price of milk go up?
Answer:
There is less of it available after International Milk pours it down the drain.

Question:
What would you do to make sure children can get milk?
Answer:
This is a very open ended question, but some of the responses will include, government punishment of International Milk, price controls (even if young students do not call them price controls), making it illegal to dump milk, and using Wonder Woman to stop the bad guys!


9-12 and undergraduate:

Question:
Why doesn’t the demand curve shift in this situation?
Answer:
When the price rises, it does not shift the demand curve. There is no clear demand shifter at work here. Tastes haven’t changed, neither have incomes, the number of buyers or the availability of substitutes. The only clear change to the market is that there is a reduction of sellers – International Milk is the only seller in the retail market.

Question:
Establishing a monopoly isn’t as easy as it seems. What kinds of things would make it difficult for International Milk to gain and then maintain a monopoly on milk?

Answer:
Buying up all the milk will get you a monopoly, but such an effort would be prohibitively expensive. Furthermore, there are so many milk producers that International Milk would run into hold-outs, producers who would demand an even higher price before they would sell. Even if they could get the monopoly, maintaining it would be nearly impossible. Not only are the entry barriers to the milk market low (all you need is a cow), there are lots of substitutes for milk these days – almond milk, oat milk, pea milk, and other non-dairy options. If the price of cow’s milk rose, people would switch to alternatives. That being said, in 1942 when the comic was published, these substitutes did not exist in large enough quantities to make a difference.

Question:
Why is a milk monopoly a bad thing for society?

Answer:
There are lots of reasons some of which are in the comic. For instance, in the opening panels we hear about a little boy who died from malnutrition because his mother could not afford milk. This is an extreme result of the market failure. Focusing on economic reasons, students should identify that prices are higher, output is lower, and there is a dead weight loss.


Question:
What options exist for stopping monopolies?

Answer:
Like the version of the question for K-8, this is a very open ended question; however, the answers from older students should be more specific. There will be responses involving government punishment of International Milk, price controls (which students should be able to specifically name), and violation of anit-trust laws, among others.

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