The Development of the
Industrial United States
Lesson 10. Rising Living Standards in the New
Nation
Lesson 25. The Economic Effects of the 19th Century
Monopoly
Why Did the Economy Grow after the Revolution?
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From the end of the
American Revolution to
the beginning of the Civil
War, the population of the
United States grew from
approximately 4 million
people to 32 million.
It is not surprising that,
with more people able to
work at making more
things, the economy
would grow.
The puzzling thing is that
the output of goods grew
faster during this time
than the population did.
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The standard of living of
the average American in
1860 was double what it
had been at the end of
the Revolution.
How can an economy
grow faster than the
population of the society
in which it develops?
Visual 10.1 Things Changed for
Americans after the Revolutionary War
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Between 1789 and the 1830s . . .
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the number of wooden chairs per household almost
doubled.
most of the upper-middle class had upholstered sofas
and chairs.
most people in cities and villages had replaced open
fireplaces with cook stoves and parlor stoves.
many houses had larger windows because window
glass was cheaper.
farm families owned more candlesticks, and oil lamps
were becoming common in cities and villages.
one household in four or five owned a carpet, and
houses in most cities and villages had window
curtains.
most households owned at least one clock.
Source: Jack Larkin, The Reshaping of Everyday Life, 1790 – 1840 (New York: Harper & Row, 1989), pp. 139 – 143.
Visual 10.2 Productivity and Productive
Resources
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Productivity is the amount of a good or
service that can be produced with a given
amount of productive resources over a
certain period of time.
Productive resources include natural,
capital and human resources.
Productive resources are scarce.
Productivity increases when:
1. more goods or services are produced with the
same amount of productive resources.
2. the same amount of goods or services is
produced with fewer productive resources.
The Chalk-Mark Factory
Round
1
2
3
Wage
$5.00
Number of Average
Marks
Cost Per
Produced Mark
How Do Market Systems Solve the
Scarcity Problem?
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Market systems provide
incentives to increase
productivity.
The reward of profit
provides businesses with
incentives to increase
productivity and lower per
unit costs.
Better Technology and
Production Methods…
The Development of the
Industrial United States
Lesson 25 The Economic Effects of
the 19th Century Monopoly
Visual 25.1
Some Nineteenth-Century Trusts
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American Sugar
Refining Trust
American Tobacco
Copper Trust
Standard Oil Trust
Steel Beam Trust
United States
Steel Corporation
Where Did the Monopolies Go?
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The late nineteenth century was a time
when business leaders used a variety of
tactics in their efforts to establish
monopolies in many key industries.
The railroads were prominent among
these concentrated industries.
Fear of business collusion caused the
federal government to enact laws to stop
businesses from colluding.
Yet, relatively few businesses were ever
broken up by actions of the government.
What happened to all the others?
Visual 25.1 Business Entities
Different types of business
firms
Pure competitor
Monopolist
Goal is maximizing profits
Yes
Yes
Price determination
Profit levels
The interactions of
buyers and sellers in
a large market
determine the
equilibrium price.
Zero profits above
the competitive
return on capital.
The pure competitor
accepts the market
price because
competition is so
steep and products
produced by each
firm are identical.
The monopolist
determines the price
given the demand
for the product. The
product is unique
and there are no
competitors.
Positive profits.
The monopolist
dictates price due to
being the only
supplier of the item
in demand. Prices
tend to increase
because there are no
competitive forces at
work.
Visual 25.1 Business Entities
Different types of
business firms
Cartel
Goal is maximizing
profits
Yes
Price determination
Groups of firms
produce similar
items. Together,
they have
monopoly power
and there are no
close substitutes
for the cartel’s
products.
Profit levels
Positive profits,
dependent on the
membership
upholding the
agreement to
raise prices and
restrict output as
in a monopoly.
Cartels are illegal
in the U.S.
Visual 25.4 How Easily Can Cartels or
Trusts Collude and Raise Prices?
How Easily Can Cartels or Trusts Collude and Raise
Prices?
 Members of the Railroad Cartel, make the following
assumptions:
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All members of the railroad cartel provide identical services.
There are no costs of production.
The railroad customer can use all or one of the railroad
services without incurring extra costs.
The Cartel Agreement:
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Members of the railroad cartel can agree to choose one of the
four pricing schemes on the next slide.
Each member is to write the cartel price on the paper
provided.
The number written on the paper can be changed at any point
prior to the time the transaction between the customer and
railroad occurs.
Government vs Competition
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Sherman Anti-Trust Act of 1890
Clayton Act of 1914
Competitive forces where
businesses compete for the
consumers’ dollars to maximize
profits…
Visual 25.4 How Easily Can Cartels or
Trusts Collude and Raise Prices?
Actual Price Per Unit Shipped
Total Revenue (P x Q)
$4-$4-$4
All firms make $13 revenue
(= $4 x 3.33 items shipped + $4 x
3.33
+ 4 x 3.33)
$3-$3-$3
All firms make $10 in revenue
(= $3 x 3.33 items shipped + $3 x
3.33
+ 3 x 3.33)
$3-$3-$4
Firms pricing at $3 per unit make
$15, otherwise $0 revenue
(= $3 x 5 items shipped + $3 x 5
+ 4 x 0)
$3-$4-$4
The one firm pricing at $3 makes
$30, otherwise $0 profit
(= $3 x 10 items shipped + $4 x 0 +
4 x 0)
Adapted from: Tawni Ferrarini and Robert Quinn, “The Oligopoly Game,”
The Michigan Social Studies Journal (Spring, 2005), pp. 28-34
Visual 25.5 How Competitive Were the
Railroads of the 1870s?
Some railroad engaged in anti-competitive practices such
as price fixing.
 However, it remained difficult to suppress competition
even in the railroad industry.
 Railroads added tens of thousands of miles of track in
the 1870s and 1880s.
 Additional track provided opportunities for increased
competition.
 Short hauls in rural areas faced little direct
competition. However, long hauls between cities
usually had two or more railroads in competition.
 Efforts by railroads to form agreements to fix their
rates and find other means to reduce competition
almost always failed.
 Aggressive managers or owners such as Jay Gould,
would break with the agreements and begin price
cutting.
 Price cutting took a variety of forms such as price
discrimination and rebates. The effect to drive down
rates, however, was the same.
Competition Matters
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When businesses compete for
consumers’ dollars, they
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Find ways to increase productivity to
lower per unit costs of production and,
thus, lower consumer prices
Search for new products and identify
unique market niches
Broaden services and increase variety
Consumers benefit!