Lesson Plan: Thalidomide: How Price Controls Shape Economic Outcomes

Subjects:

Economics, Civics/Government

• Economics: This lesson could fit into a broader unit on supply and demand and market equilibrium. It uses a historical case study on thalidomide, and thus could also go into a unit on real-world applications of economic theory.

• Civics/Government: This lesson could be used to analyze policy implementation, especially focusing on economic policy. The Retro Report video includes significant discussion on the role of the F.D.A. in the approval process for thalidomide.

Grade Level:

9-12

Lesson Duration:

Two class periods

• Day 1: Steps #1-7

• Day 2: Steps #7-12

Essential Questions:

• When and how should governments intervene in markets to protect consumers, and what potential trade-offs does that create?

• How do policies that aim to improve fairness or affordability affect incentives for buyers, sellers, and regulators?

• What can historical examples of government regulation, like the thalidomide case, teach us about the limits and responsibilities of market oversight?

Lesson Objectives:

Students will:

• Compare the incentives of government regulators and private market participants using case evidence and economic reasoning.

• Interpret supply and demand graphs to demonstrate the economic impact of price ceilings and floors.

• Analyze real-world examples of price controls to identify their intended goals and unintended consequences.

• Describe why thalidomide was banned by the F.D.A. in 1962 and explain the effect of the ban on drugs that have come to the U.S. market since.

Materials:

• Retro Report video Thalidomide: From Tragedy to Treatment (Transcript)

• Student Activity handout

• “Price Controls” | EconLib

• “Study: Inflation Reduction Act’s Cap on Insulin Out-of-Pocket Costs Boosts Prescription Fills” | USC Alfred E. Mann School of Pharmacy and Pharmaceutical Sciences

Procedure:

1. Distribute the student handout. Begin to introduce price controls by asking students “What happens when prices rise too high for essential goods like housing or medicine?”

   1. Have students record their answers. Then, call on a few students to give their responses to the question.

2. Next, define price ceilings and price floors in plain language and have students record the definitions on their Activity handouts. Ask students to identify who might have incentives that line up with limiting the price with a price ceiling, and who might have incentives that line up with setting a minimum price with a price floor.

   1. Price ceiling: A government-established upper limit on the price that can be charged for a good or service to a consumer; the price must be at the ceiling or lower

   2. Price floor: A government-established lower limit on the price that can be charged for a good or service to a consumer; the price must be at the floor or higher

3. Have students watch the Retro Report film “Thalidomide: From Tragedy to Treatment” and answer the questions from the Student Activity handout. As needed, pause the video after key points to allow students to complete each question. Students may need clarification on terms like regulation, incentives, and market behavior – explain as needed.

   1. Regulation: Rules that limit who can enter a business (entry controls) and what prices they may charge (price controls)

   2. Incentives: Factors that influence the decisions and behavior of individuals, businesses, and governments

   3. Market behavior: The way in which participants in a market make decisions and interact with one another, particularly under conditions of uncertainty and competition

4. Teacher Note: Questions are provided for the film that are both economic and civics-related in nature. You may use either set or both, depending on the class you are leading. The economic questions would be better for reflective purposes, while the civics questions can best be answered while viewing.

5. Debrief the Retro Report film with the class, using the questions from the video to guide student understanding. Focus on the balance between government oversight and unintended market effects. A guiding question for this part should be, “What can historical examples of government regulation, like with the thalidomide case, teach us about the limits and responsibilities of market oversight?”

6. Review basics of supply and demand. Drawing a graph for the students may help.

Assign the graphing of price controls to students. Four scenarios are described (effective and ineffective price floors, effective and ineffective price ceilings). Students will look at graphs of each of the scenarios and be asked questions about how this has affected the market equilibrium, and what might result from this change.

a. You might have students draw the graphs themselves to deepen understanding.

b. If so, make sure students are labeling their graphs appropriately. They should have labels for the axes, labels for their supply and demand lines, labels for their price ceiling/floor, and labels for the price and quantity of various points

7. Discuss answers and misconceptions about effective and ineffective price controls. It may be appropriate for you to draw each of the graphs in front of the class or display correct student work. Use the guiding question, “How do policies that aim to improve fairness or affordability affect incentives for buyers, sellers, and regulators?”

8. After reviewing the previous day’s work and reintroducing the idea of government price controls, assign the “Price Controls” reading excerpts from the student activity handout.

   1. Depending on your class, you might either assign the excerpts individually or for small groups/pairs.

   2. Students should be able to understand and describe, based on the reading, why price controls are imposed, what problems they can cause, and how black markets, quality issues, and rationing can be results of price controls.

9. Discuss the questions with students after the completion of reading. The guiding question is, “When and how should governments intervene in markets to protect consumers, and what potential trade-offs does that create?”

10. Instruct students to analyze the findings from the USC study. The accompanying questions may help students to realize that sometimes price controls can be used to regulate businesses from price gouging, especially for essential goods/services. After students have completed their analyses, have a few students share their hypotheses on when price controls may be effective.

11. Next, students will compare the incentives of government institutions and producers in an economy. For each incentive, they will determine whether it belongs to government institutions only, producers only, or both. When students are finished, it may be appropriate to go over the list and have students defend their answers to see if they understand incentives.

12. Wrap-up: Think–Pair–Share. Have students consider the questions about thalidomide and price controls and record their answers on the Activity handout. They will then discuss responses with a partner before sharing with the class. Students should be prompted to use evidence from their materials, not just opinions.

Extension Activity:

1. Have students develop an alternative to a price control — either a government policy (like subsidies or tax breaks) or a firm-led solution (like coupons or pricing tiers). They should discuss the economic impact of their decision on supply and demand (i.e. a subsidy will encourage producers to make more goods, which will lower prices, or a coupon might encourage consumers to purchase more goods). It could be a one-pager or a presentation.

About the Author:

Tyler Dettmann has taught AP Government and AP Economics at Norman High School in Oklahoma for more than a decade. He holds a B.S. and a master’s degree in Education from the University of Oklahoma.

Standards

College, Career, and Civic Life (C3) Framework for Social Studies

• D2.Eco.1.9-12. Analyze how incentives influence choices that may result in policies with a range of costs and benefits for different groups
• D2.Eco.6.9-12. Generate possible explanations for a government role in markets when market inefficiencies exist.
• D2.Eco.8.9-12. Describe the possible consequences, both intended and unintended, of government policies to improve market outcomes.
• D2.Civ.1.9-12. Distinguish the powers and responsibilities of local, state, tribal, national, and international civic and political institutions.
• D2.Civ.6.9-12. Critique relationships among governments, civil societies, and economic markets.
• D2.Civ.13.9-12. Evaluate public policies in terms of intended and unintended outcomes, and related consequences.
• D3.1.9-12. Gather relevant information from multiple sources representing a wide range of views while using the origin, authority, structure, context, and corroborative value of the sources to guide the selection.
• D4.2.9-12. Construct explanations using sound reasoning, correct sequence (linear or non-linear), examples, and details with significant and pertinent information and data, while acknowledging the strengths and weaknesses of the explanation given its purpose (e.g., cause and effect, chronological, procedural, technical).
• D4.6.9-12. Use disciplinary and interdisciplinary lenses to understand the characteristics and causes of local, regional, and global problems; instances of such problems in multiple contexts; and challenges and opportunities faced by those trying to address these problems over time and place.

Common Core Literacy Standards

• CCSS.ELA.LITERACY.RI.11-12.3: Analyze a complex set of ideas or sequences of events and explain how specific individuals, ideas, or events interact or develop over the course of a text.
• CCSS.ELA-LITERACY.RH.11-12.2: Determine the central ideas or information of a primary or secondary source; provide an accurate summary that makes clear the relationships among the key details and ideas.
• CCSS.ELA-LITERACY.RH.11-12.4: Determine the meaning of words and phrases as they are used in a text, including analyzing how an author uses and refines the meaning of a key term over the course of a text (e.g., how Madison defines faction in Federalist No. 10).
• CCSS.ELA-LITERACY.RH.11-12.7: Integrate and evaluate multiple sources of information presented in diverse formats and media (e.g. visually, quantitatively, as well as in words) in order to address a question or solve a problem.
• CCSS.ELA-LITERACY.WHST.11-12.9: Draw evidence from informational texts to support analysis, reflection, and research.