Introduction to Market Failure
Unit 2 · Lesson 2.10 · Last updated June 2026
A 45-minute lesson where students experience the tragedy of the commons through a hands-on logging simulation using pretzel sticks, then explore key vocabulary and government solutions to market failure.
Overview
In this lesson, students are introduced to the concept of market failure through a simulation illustrating the tragedy of the commons. Students are also introduced to the government's role in reducing market failure. Note: Lessons 2.1–2.9 were designed with "tidy" assumptions to provide a foundation for applying supply and demand concepts. This lesson and future Unit 2 lessons introduce "messier" circumstances to challenge and deepen understanding — the same tidy-to-messy structure used in Unit 1.
Learning Objectives
- Explain how a market can sometimes fail to produce an efficient outcome.
- Define and explain the tragedy of the commons.
- Describe possible methods to remedy a tragedy of the commons, including a role for government.
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Materials
- Instruction Slides (display during class period)
- 1 large sheet of blank poster paper
- 1 large sheet of poster paper, divided (with lines or tape) into 6 sections
- 32 pretzel sticks
- 64 individually-wrapped candies (it is unlikely that all candy will be distributed)
- Student Handout pp. 6–7 (1 copy per student)
Optional Extension (for classes longer than 45 minutes)
- Silent Discussion Prompts pp. 8–10 (1 single-sided copy per group of 3 students)
- Additional Silent Discussion Prompt p. 11 (2 single-sided copies)
Lesson Sequence
Slides 2–3
- Display Slide 2. Students discuss their responses to the activator with 1 to 2 peers. Debrief as a class. (Additional educator tips and suggested answers are in the notes section throughout Instruction Slides.)
- Proceed to Slide 3. Introduce the learning objectives and tell students that in this lesson they will be introduced to situations where markets do not function perfectly.
Slides 4–31
- Progress through Slides 4–5. Select 6 competitive students to be loggers. Place the blank poster paper (the timber forest) on a table all students can see, and have the loggers stand around it. Scatter 12 pretzel sticks on the paper. Click to reveal the remaining text and tell loggers they cannot speak to one another.
- Proceed to Slide 6. Explain the Open Forest rules. Say "Go" and allow students to harvest timber for 15 seconds. Collect all timber harvested in Round 1. Pay loggers 1 candy per unit harvested, but refuse to pay for any that were damaged or broken. Note: At most there will be two rounds — do not share this with students. Because most students will not trust one another to preserve the limited resource, little or no timber will remain for Round 2.
- If any timber remains, add 1 additional pretzel stick to the forest. Conduct Round 2 and pay 2 candies per unit harvested as promised.
- Display Slide 7. Place the divided poster paper in the center and assign sole harvesting rights on one section to each logger. Place 12 pretzel sticks on the paper (2 per section), avoiding property lines. Explain that the same rules apply except loggers will not receive candy for harvesting from someone else's property.
- Say "Go" and run the simulation again for 15 seconds. Pay 1 candy per unit in Round 1. Because students are confident in their property rights, they will likely preserve timber for Round 2. If any timber remains in a section, add 1 pretzel stick to represent repopulation. Conduct Round 2 and pay 2 candies per unit.
- Ask students to return to their seats. Use Slides 8–9 to debrief the simulation as a class. (Refer to the notes section for support.)
- Advance through Slides 10–11. Distribute 1 copy of Student Handout to each student. Students answer the prompt at the top of Student Handout. Tell students they will return to this initial description at the end of class.
- Advance to Slide 12 and explain that the tragedy of the commons is one example of market failure. Encourage students to add notes or drawings to the "Market failure" section of Student Handout.
- Proceed to Slide 13, which includes a 60-second video clip. Tell students to consider the 3 questions listed on Student Handout under "Video Clip" as they watch. Play the video.
- Display Slide 14. Instruct students to discuss the 3 questions with 1 to 2 classmates and record their ideas on Student Handout before debriefing as a class.
- Advance to Slide 15 and define the tragedy of the commons. Tell students to draw an image or diagram to represent the concept on Student Handout next to the definition.
- Proceed through Slides 16–19 to define important vocabulary. Pause between terms to allow students to add examples, notes, or drawings to Student Handout. Note: Each vocabulary slide features an image that exemplifies the term.
- Display Slide 20 and review the two conditions that must be present for a tragedy of the commons to occur. Explain how these conditions are exemplified in the pasture and/or forest example. Instruct students to fill in the relevant blanks on Student Handout.
- Advance to Slide 21. Organize students into groups of 2 or 3. Explain that groups will work together to answer questions and will have approximately 15 seconds to determine correct responses. When you say "show me your response," students hold up fingers to indicate their answer(s). (E.g., if 1 and 3 are correct, one team member holds up 1 finger and the other holds up 3.)
- Progress through Slides 22–29, soliciting student responses to the 4 prompts. Debrief each prompt using the slide immediately following. After the second prompt (shared classroom supplies), ask students whether the scenario could result in the tragedy of the commons — students should recognize the parallel to the open forest simulation.
- Progress through Slides 30–31. Reinforce the two required conditions for a potential tragedy of the commons, noting that one (the rivalrous nature of a resource) cannot be altered.
- Display Slide 32. Ask students to discuss with 1 to 2 peers how they might solve the tragedy of the commons. Click to reveal the hint if students are struggling. After 2 to 3 minutes, ask a few students to share suggested solutions.
- Proceed to Slide 33 and explain 3 potential solutions to the tragedy of the commons. Click to reveal solutions one at a time (see notes section for real-world examples). Pause between each to allow students to add notes or drawings to the "Solutions" section of Student Handout.
Slides 34–35
- Progress through Slides 34–35. Instruct students to write their response to prompt 1 in the "Summarizer" section of Student Handout. After 1 minute, click to display prompt 2. Students share their response to prompt 1 and then discuss prompt 2 with a peer using at least one of the question stems.
Optional Extension (classes longer than 45 minutes): Place students in groups of 3 (or 4). Use Slides 37–40 to run a Silent Discussion using the Essential Questions as prompts. Distribute Silent Discussion Prompts (and Additional Silent Discussion Prompt for groups of 4). Students rotate prompts every 30–45 seconds, adding responses and reactions in writing. Allow 6 minutes for groups to debrief. Collect and review for misconceptions to address at the start of the next lesson.
Aligned Standards
Voluntary National Content Standards in Economics
What Educators Are Saying
Clear examples, good introduction.
Students definitely understood the tragedy of the commons following this lesson, and were discussing it well when answering questions throughout the class!
Awesome activity — very fun and memorable. Great lesson plan and engaging slides.