| Lesson Plan |
| Grade: |
Date: 25/02/2026 |
| Subject: Economics |
| Lesson Topic: application and effectiveness of measures to tackle different forms of market failure: specific and ad valorem indirect taxes |
Learning Objective/s:
- Describe how specific and ad valorem indirect taxes correct negative externalities.
- Compare the incidence, revenue generation, and equity effects of the two tax types.
- Apply criteria to decide which tax is more appropriate for a given market failure.
- Analyse the impact of each tax on market equilibrium using supply‑demand diagrams.
- Evaluate policy recommendations that combine both taxes.
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Materials Needed:
- Projector and screen for slides/diagrams
- Whiteboard and markers
- Handout summarising tax formulas and the comparison table
- Worksheets with practice calculations
- Calculator for each student/group
- Sample product price list for ad valorem calculations
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Introduction:
Begin with a quick poll asking students which everyday products they think are taxed and why. Link their responses to the concept of negative externalities and remind them of the goal to achieve a socially optimal outcome. State that by the end of the lesson they will be able to evaluate and choose the most effective tax instrument for different market failures.
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Lesson Structure:
- Do‑now (5') – short quiz on externalities and market failure.
- Mini‑lecture (10') – introduce indirect taxes, differentiate specific vs. ad valorem, display supply‑demand shifts.
- Guided practice (12') – calculate incidence and revenue for a specific tax using a provided dataset.
- Group activity (15') – students work on an ad valorem scenario, plot the pivoted supply curve and discuss equity implications.
- Comparative analysis (8') – whole‑class discussion of advantages, limitations, and when each tax is preferable, using the comparison table.
- Exit ticket (5') – each student writes one policy recommendation choosing a tax type for a given good and justifies the choice.
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Conclusion:
Today we clarified how specific and ad valorem taxes internalise external costs and how their design influences revenue, equity, and market outcomes. For homework, complete the worksheet that asks you to select the most suitable tax for three different market failures and justify your choice. An exit ticket collected at the end of class will be reviewed to ensure understanding.
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