Activity 01
Case Study Carousel: Policy Impacts
Prepare stations with case studies on merit goods (e.g., NHS) and demerit goods (e.g., tobacco tax). Groups spend 10 minutes at each station, noting externalities, market failure reasons, and policy evaluations. Rotate twice and share findings in a whole-class debrief.
Differentiate between merit goods and demerit goods.
Facilitation TipDuring the Case Study Carousel, circulate with sticky notes so students can annotate assumptions directly on the case materials before moving to the next station.
What to look forPresent students with a list of goods (e.g., flu vaccinations, fast food, university education, cigarettes, public libraries). Ask them to discuss in small groups which are merit goods and which are demerit goods, justifying their classifications with reference to positive/negative externalities and information issues. Each group should select one good to present their reasoning on.
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Activity 02
Debate Pairs: Intervention Effectiveness
Pair students to debate for or against a policy, such as subsidizing gym memberships as a merit good. Provide data on elasticities and externalities. Switch sides midway, then vote and justify with evidence.
Explain why the free market under-provides merit goods and over-provides demerit goods.
Facilitation TipFor Debate Pairs, provide a clear timer and speaking roles (e.g., proposer, challenger, economist) to keep discussions focused and prevent one student from dominating.
What to look forProvide students with a scenario describing a government policy, such as a subsidy for electric vehicles or a ban on certain types of gambling. Ask them to identify whether the policy targets a merit or demerit good, explain the market failure it aims to correct, and briefly state one potential unintended consequence of the policy.
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Activity 03
Market Simulation: Tax and Subsidy Game
Divide class into consumers, producers, and government. Simulate free market trading demerit goods, then introduce taxes and track quantity changes. Students graph supply shifts and calculate welfare losses.
Evaluate the effectiveness of government policies to encourage merit good consumption and discourage demerit good consumption.
Facilitation TipIn the Tax and Subsidy Game, assign roles with different income levels or addiction risks to show how identical policies affect diverse consumers differently.
What to look forOn a small card, ask students to define 'merit good' in their own words and give one real-world example. Then, ask them to define 'demerit good' and give one real-world example. Finally, ask them to explain why the free market alone would not provide the 'optimal' amount of either type of good.
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Activity 04
Evaluation Grid: Whole Class Build
Project a table for merit/demerit goods and policies. Students contribute examples, pros, cons, and effectiveness scores via sticky notes or digital polls, building a shared resource.
Differentiate between merit goods and demerit goods.
Facilitation TipFor the Evaluation Grid, model one row as a whole class first, then have groups contribute criteria like ‘effectiveness’ or ‘equity’ before populating the grid.
What to look forPresent students with a list of goods (e.g., flu vaccinations, fast food, university education, cigarettes, public libraries). Ask them to discuss in small groups which are merit goods and which are demerit goods, justifying their classifications with reference to positive/negative externalities and information issues. Each group should select one good to present their reasoning on.
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Generate Complete Lesson→A few notes on teaching this unit
Start with concrete examples students already recognize, such as school lunches or vaping, to anchor abstract concepts. Avoid presenting merit/demerit goods as fixed categories; instead, emphasize context—what’s a merit good in one setting (e.g., breastfeeding support) may not be in another (e.g., formula marketing). Research shows students learn best when they confront their own misclassifications through peer challenge and policy trade-offs.
By the end of these activities, students should confidently classify goods, explain why markets fail for each category, and evaluate policy trade-offs using evidence. They should articulate how information gaps, time horizons, and external effects drive under- or over-consumption.
Watch Out for These Misconceptions
During Case Study Carousel, watch for groups assuming merit goods are always free public services.
Redirect them to private sector examples such as private schools with spillover benefits; ask them to locate a case study that contradicts this assumption and share it with the class.
During Debate Pairs, watch for students claiming demerit goods should always be banned.
Prompt them to consider consumer sovereignty and black market risks; have them test their ban proposal against a tax or labeling alternative during the debate.
During Evaluation Grid, watch for students asserting government intervention always corrects market failure perfectly.
Guide them to examine subsidy funding sources or enforcement costs in their case studies; ask them to add ‘new distortions’ as a criterion in their grid.
Methods used in this brief