Lesson 5: What Can We Learn About Natural Monopolies at Electricial Power Companies?
This one-day lesson (with possible one-day extension with “Net Neutrality Lesson Plan”) is designed to introduce students to the economic concept of a natural monopoly in the context of infrastructure. The lesson introduces various natural monopolies in the infrastructure realm, but focuses primarily on the electrical grid and power companies. The class will follow a basic handout that introduces the key vocabulary, provides discussion questions, explains an interactive role play scenario, and follows up with a conclusion activity that involves utilizing the key vocabulary, analyzing the central problem caused by natural monopolies, and then potential solutions to those problems. The lesson is designed to take roughly 50 minutes, but can be extended for periods up to 90 minutes by using an alternative provided role play, lengthening discussions, and lengthening the time for role play interactions. There is also a homework component which can be done in class for longer periods.
Students should be able to do the following by the end of the lesson:
- Define a natural monopoly and give examples of natural monopolies.
- Explain why a natural monopoly may be inevitable due to the nature of the good or service provided.
- Explain why economics might consider a natural monopoly, like any monopoly, to be inefficient.
- Explain possible solutions to the problem created by natural monopolies including regulatory options.
- Introductory question.
- Pass out handout which lays out the entire lesson.
- Read introduction to Natural Monopolies.
- Perform a role play simulating the cost of wiring an entire city for electricity.
- Discuss the problems of a natural monopoly in pairs or as a class.
- Discuss in pairs/as a class, possible solutions including regulatory options.
- Revisit the earlier role play to examine the interplay between consumers, electric companies, and regulatory governmental agencies. Conduct a mock governmental hearing on potential regular of the power company of their city.
- Follow up HW activity to research their own city electrical services, including examining if it is a natural monopoly, how it is regular (if regulated), and have students make their own recommendations.
The design, development, validation and publication of these infrastructure teaching modules was supported by grants from the National Science Foundation, Grant #1334292, and the Global Projects Center at Stanford University. All opinions and conclusions expressed in this paper reflect the views of the author/s, and not necessarily the views of these sponsors.