Lesson Plan

• Describe why merit goods and goods with positive externalities are under‑consumed.
• Explain how the gap between private and social marginal benefit creates dead‑weight loss.
• Evaluate at least two government interventions that can correct the misallocation.
• Apply the demand‑supply diagram to illustrate the market outcome versus the socially optimal outcome.

• Projector and screen
• Whiteboard and markers
• Printed handouts with the PMB/SMB diagram
• Worksheet containing case‑study tables
• Calculators (optional)

Start with a quick poll: “Who has received a vaccination or attended a free school program?” Use this to highlight everyday merit goods. Review the previous lesson’s definition of market failure and the concept of private vs. social benefit. State that by the end of the lesson students will be able to identify why these goods are under‑consumed and how governments can intervene.

1. Do‑now (5’) – short quiz on examples of merit goods and external benefits.
2. Mini‑lecture (10’) – recap key concepts and introduce the PMB/SMB diagram.
3. Group activity (15’) – analyse the impact table (health, education, environment, innovation) and identify the external benefits.
4. Diagram drawing (10’) – each student sketches the market and socially optimal equilibrium, labeling the dead‑weight loss.
5. Intervention debate (15’) – groups are assigned a policy tool (subsidy, public provision, regulation, information campaign) and argue its advantages and limitations.
6. Formative check (5’) – exit ticket: “In one sentence, explain why government action is required for merit goods.”

Summarise how the mismatch between private and social marginal benefit leads to under‑consumption and welfare loss. Highlight the trade‑offs of each intervention discussed. Collect the exit tickets and assign a homework task: research a real‑world policy (e.g., free school meals) and evaluate its effectiveness in correcting the market failure.