Indiana Social Studies E.4.2
The Standard
Describe how the government taxes negative externalities (spillovers) and subsidizes positive externalities to resolve the inefficiencies they cause.
2026 Indiana Academic Standards: K-12 Social Studies · Students explain that because resources are limited, people must make choices, understanding the role that supply, demand, prices, and profits play in a market economy. Key elements of the course include study of scarcity and economic reasoning, supply and demand, market structures, the role of government, national economic performance, the role of financial institutions, economic stabilization, and trade.
Teacher's field guide
What This Standard Means
What Students Need to Do
- Students identify costs or benefits that fall on people outside a purchase. They explain how a tax can reduce a harmful activity and a subsidy can increase a helpful one.
What Mastery Looks Like
- Given a polluting factory and a vaccination program, students name the affected bystanders and choose a tax or subsidy for each. They predict how each policy changes the amount produced or used.
Common Misconceptions
- Students may think a pollution tax bans production. They may count a vaccine's benefit to the patient as the spillover, missing the protection it gives other people.
How to Assess It
- Exit ticket: A factory's smoke harms neighbors, while a flu shot protects others. Which activity should be taxed, which subsidized, and why?
Lesson moves
Ways to Teach It
Use tokens to model a factory sale with pollution costs, then add a tax and compare the factory's and neighbors' payoffs.
Ask students to write who benefits when someone gets a flu shot and why a government might help pay for it.
Give pairs pollution and public benefit cards; have them choose a tax or subsidy and predict whether the activity increases or decreases.
Show a state cigarette tax table and a public vaccine funding notice; ask students to identify the spillover each policy addresses.
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Printable E.4.2 Worksheet
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Related Standards
- E.4.1
Explain how markets underproduce public goods, and analyze the role of government to resolve those market failures.
- 7.E.2
Identify ways that societies deal with helpful and harmful externalities in Africa, Asia, and the Southwest Pacific.
- GE.2.6
Explain and evaluate how and why government control influences businesses and individuals through laws and taxes.
- GE.5.9
Analyze and discuss the structure of, the purpose for, and the effects of government taxation.
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