Introduction to Subsidies (Online Lesson)

In this online lesson, students cover the basics of subsidies and how they can be used to tackle market failure.

WHAT YOU'LL STUDY IN THIS ONLINE LESSON

• The types of market failure that can be reduced by using subsidies
• Diagrammatic analysis of subsidies, linked to the price mechanism
• Identifying important areas on subsidy diagrams, with a chance to practise some quantitative skills
• Relevant real-world examples of subsidies

Additional teacher guidance is available at the end of this lesson.

Thank you to Nicky King and Jon Clark for their contributions to this lesson.

HOW TO USE THIS ONLINE LESSON

Follow along in order of the activities shown below. Some are interactive game-based activities, designed to test your understanding and application of maximum prices. Others are based on short videos, including activities for you to think about and try at home.

If you would like to download a simple PDF worksheet to accompany the video activities, you can download it here: Introduction To Subsidies. You can print it off and annotate it for your own notes, or make your own notes on a separate piece of paper to add to your school/college file.

ACTIVITY 1: VIDEO - HOW CAN SUBSIDIES BE USED TO REDUCE MARKET FAILURE?

This video provides an overview of the various types of market failure that can be tackled by using subsidies, including information gaps (merit goods), positive externalities, labour immobility, public goods and natural monopoly / strategic industries.

ACTIVITY 2: VIDEO - DIAGRAMMATIC ANALYSIS OF SUBSIDIES

In this video, you will learn how to adapt demand and supply diagram to show the impact of a subsidy, as well as showing the impact of subsidies on positive externality diagrams. We'll also help you to understand and practise the skill of analysis in relation to diagrams, focusing on key features of top level analysis.

ACTIVITY 3: READING AND RESEARCH TASK - UK CHILDCARE

All families in the UK with pre-school children are entitled to free childcare. Those with 2-year olds can have 15 free hours per week, and those with 3-4 year olds can have 15 free hours as a minimum, rising to 30 free hours for working families. The government subsidises childcare providers by channelling the funding into local authorities, who then manage the scheme. Your task is to write a journalistic-style article outlining how the scheme work and considering whether it is effective.

As a starting point, you could look at government information on the scheme here and here. You could also take a look at this article from The Guardian which considers some of the disadvantages of the scheme from the perspective of childcare providers, and this article from the BBC which focuses on the cost of childcare in the UK compared with other countries.

ACTIVITY 4: VIDEO - AREAS ON DIAGRAMS

It can be really important in exams to be able to identify areas on diagrams as a way of strengthening both analysis and evaluation. In this video, we look at how to identify and measure areas on diagrams including total spending and the split between consumer and producer benefits from subsidies.

ACTIVITY 5: VIDEO - EXAMPLES OF SUBSIDIES

In this short video, we'll take a quick look at some good examples of subsidies, and then challenge you to a quiz!

ACTIVITY 6: GAME - SUBSIDY KEY TERMS

Challenge yourself with this short interactive quiz, testing your knowledge of key terms that are associated with subsidies.

ADDITIONAL TEACHER GUIDANCE

This lesson comprises:

• Around 25 minutes of guided video activity, spread over 4 videos and supported by an accompanying worksheet
• Around 15 minutes of "thinking time" and student activity spread over the 4 videos
• 1 interactive game-based activity testing knowledge of key terms associated with subsides
• 1 research and writing task on UK childcare subsidies

We suggest allowing around 45 minutes for the main tasks in this online lesson, along with an additional 30-40 minutes for the research and writing task.