Lesson Plan

• Describe what external costs and external benefits are and differentiate them from private costs/benefits.
• Explain how externalities cause market failure and affect social welfare.
• Calculate social cost and social benefit using simple formulas.
• Evaluate government interventions (taxes, subsidies, regulation, tradable permits) for correcting externalities.
• Apply the concepts to real‑world business decisions and assess wider societal impact.

• Projector and screen
• Whiteboard and markers
• Printed worksheet with calculation examples
• Case‑study handouts on pollution and training
• Calculators
• Chart paper and coloured pens for diagramming

Begin with a quick poll: “What happens when a factory pollutes the river?” Connect students’ ideas to prior knowledge of private costs. Explain that today they will uncover hidden costs and benefits that affect society, and they will be able to identify and calculate them by the end of the lesson.

1. Do‑Now (5'): Students list examples of costs they think a business faces; teacher collects and highlights missing “third‑party” effects.
2. Direct Instruction (10'): Define external cost, external benefit, social cost, social benefit; show illustrative calculations on screen.
3. Guided Practice (12'): Work through the factory pollution example together, completing the social cost formula.
4. Group Activity (15'): In small groups, analyse a case study (e.g., employee training) and calculate social benefit; create a simple supply‑demand diagram on chart paper.
5. Whole‑Class Discussion (10'): Groups present findings; teacher links to market failure and government intervention.
6. Exit Ticket (5'): Students write one way a business can internalise an externality and the likely outcome.

Recap the key distinction between private and social outcomes and why governments intervene. Collect exit tickets to gauge understanding, and assign homework: research a recent news story involving an externality and propose an appropriate policy response.