Subsidies and Taxes - Lesson Plan: 3 x 1 hour lessons

A series of 'off the shelf' lesson plans and resources for use in the classroom. These lessons deal with subsidies and taxes and are relevant to the following specifications:

• AQA: AS Module 1-10.6
• Edexcel: AS Unit 1
• OCR: AS Unit 2882, 5.2.1, 5.2.3

Aim:

These lessons are designed to help students to use knowledge of supply and demand models and demonstrate how markets can be affected by intervention from governments or other agencies in an attempt to correct a perceived market failure. The introduction gives students some information that should act as reinforcement to the groundwork that is likely to have been completed in previous lessons on taxation and subsidies. Some facts are provided to give students some understanding of the extent to which subsidies and taxation impacts on markets - it may be useful to draw the attention of students to the discussions of the World Trade Organisation, considering the last breakdown of talks in December 2005. Such a debate is highly relevant to this section but some students may not be fully aware of the extent to which it is!

There is then a 'walkthrough' series of questions that are designed to lead students into an analysis of the impact of a subsidy, both on the market concerned and on other markets, in the short term and long term. Some of these questions can be discussed beforehand so that students can make notes as a guide to their analysis. Some of the questions raise some important points about the issues surrounding such intervention measures - equity, efficiency and market distortions are complex concepts and students will need some support as the Activity progresses.

Learning Objectives:

At the end of the lessons, students should:

• Understand the nature of a subsidy and how it affects a market
• Understand the incidence of a tax on producers and consumers in a market
• Understand the extent of the costs and benefits of the two policy measures
• Understand the importance of price elasticity on the outcome of such interventions
• Show some appreciation of the long term implications of policy intervention

Resources:

• PowerPoint Presentation - Correcting Market Failure [74 KB]
• Mind Map - Correcting Market Failure
• Activity - Subsidies and Taxes
• PCs for research (not essential but students can be encouraged to look at the Web sites suggested for further research)

Lesson Structure:

Lesson 1

1. Introduce the subject of subsidies and taxation - go through the theory using the Presentation as support if required. (20 minutes)
2. Hand out the Activity - go through the task and discuss some of the issues surrounding the task. (20 minutes)
3. Set students a task of doing some preliminary background research using the suggested links in preparation for the main work in the next lesson. (20 Minutes)

Lesson 2

1. Review the task and the learning objectives and set students to work answering the set of questions on subsidies. (5 minutes)
2. Students work on the task. (45 minutes)
3. Bring students together to review the issues and reinforce the learning that has taken place. (10 minutes)

Lesson 3

Repeat the process in lesson 2 for the taxation exercise.