Government intervention to address externalities

SubjectEconomics YearSenior secondary Time160

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Introduction

Students learn how governments intervene in the market to vary the quantity of goods and services produced or consumed due to either social costs (negative externalities) or benefits (positive externalities). The focus of this set of activities is on how governments vary supply through imposing taxes, paying subsidies and enforcing regulations. Students discuss whether government intervention leads to a more efficient allocation of resources.

Australian Curriculum or Syllabus

This activity addresses several aspects of economic curriculums across all states and territories. In particular, it addresses how governments intervene in the market to vary the supply of goods with either social costs or benefits and the effect of government intervention on market outcomes.

See also:

Teacher resources

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Visualiser

Modelling subsidies

 
Teacher notes

Modelling subsidies

Student learning resources

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Explainer

How governments address externalities

 
Worksheet

Addressing externalities

 
Investigation

Taxation and negative externalities

Suggested activity sequence

This sequence is intended as a framework to be modified and adapted by teachers to suit the needs of a class group. If you assign this activity to a class, your students will be assigned all student resources on their 'My learning' page. You can also hand-pick the resources students are assigned by selecting individual resources when you add a work item to a class in 'My classes'.

Part A: Modelling the impact of government policies to vary supply

  1. Introduce the concept of supply-side policies and the role of government in varying the supply of goods with social costs or benefits.
  2. Pairs of students read the first section of the explainerEncourage students to use the reading for meaning strategy or to take notes using the Cornell note taking system.
  3. Model the impact of a subsidy on supply, price and quantity traded using the visualiser. For an explanation of the effect of a subsidy on supply, price and quantity, see the teacher’s notes.
  4. Students complete the worksheet. Students may need to refer to the case study on the explainer to support them.
  5. Discuss student answers, modelling the supply and demand curve for each scenario. Possible discussion points include:
    • How does increasing or decreasing regulations affect levels of production and consumption?
    • Why would the government want to increase regulations on the production of plastics? How does this improve society’s wellbeing?
    • Why would they want to place fewer regulations on the provision of childcare? How does this measure improve society’s wellbeing?
    • What difference does a subsidy to the production of lithium batteries make? Why is this desirable? How would it improve society’s wellbeing?
    • How does imposing a tax on alcoholic beverages affect the quantity traded? Why would the government intervene in the market to reduce the production and consumption of alcohol?
    • What other examples of taxation have been used to vary the production and consumption of goods with social costs?
    • How do taxes, subsidies and regulations lead to more efficient allocation of resources?

Part B: Investigating the role of taxes in varying supply

  1. Use a grouping strategy to organise students into groups of 3.
  2. Give groups at least 2 lessons to complete the group investigation.
  3. Groups present their findings to the class.
  4. Discuss whether government intervention leads to a more efficient allocation of resources in terms of maximising society’s wellbeing.
  5. Students write a short response to the question: How does government intervention lead to a more efficient allocation of resources?