Lesson Plan

• Define merit and demerit goods and explain their associated externalities.
• Compare market outcomes for merit versus demerit goods when left unregulated.
• Analyse how subsidies, taxes, and regulations move the market toward the socially optimal quantity.
• Evaluate the welfare effects of government intervention using consumer/producer surplus and dead‑weight loss.
• Apply these concepts to real‑world examples such as education and tobacco.

• Projector and screen for slides/diagrams
• Whiteboard and markers
• Handout with merit vs demerit goods comparison table
• Graph paper or digital graphing tool for drawing MB/MC curves
• Calculator (optional)
• Sticky notes for quick assessment

Begin with a quick poll: “Which public services should the government provide for free?” Connect responses to the idea of goods that generate benefits beyond the individual. Recall previous lessons on externalities and market failure. Today you will identify merit and demerit goods, explain why markets mis‑allocate them, and evaluate government interventions.

1. Do‑now (5’) – Students list daily‑use goods and preliminarily classify them as merit or demerit; teacher records responses.
2. Mini‑lecture (10’) – Define merit and demerit goods, discuss characteristics and externalities, and display the comparison table.
3. Diagram activity (12’) – In pairs, draw private vs social marginal benefit/cost curves for a merit good and a demerit good, marking market and socially optimal quantities and the effect of a subsidy or tax.
4. Policy analysis (10’) – Groups examine a case (e.g., free primary education, tobacco tax) and decide which instrument best corrects the failure, justifying with welfare concepts.
5. Check for understanding (5’) – Quick quiz or exit ticket with 2–3 questions on definitions and policy impacts.
6. Summary & transition (3’) – Teacher recaps key points and links to the next lesson on public goods.

Recap that merit goods are under‑consumed due to positive externalities, while demerit goods are over‑consumed because of negative externalities, and that targeted policies can shift quantities toward the social optimum. For the exit ticket, ask students to write one real‑world example of each and the appropriate government tool. Assign homework: research a local merit or demerit good and prepare a brief justification for a policy intervention.