Imagine that there are two people in one room - Mary and Jane. Mary is smoking cigarettes. The table below shows Mary's Marginal Private Benefits (MPBM) and Marginal Private Costs (MPCM) of smoking each additional cigarette, as well as Marginal Damages (MDJ) to Jane from each additional cigarette: Number of cigarettes smoked MPBM MPCM MDJ 1 14 5 5.5 2 12 6 6 3 10 7 6.5 7 5 6 9 7.5 6 7 4 10 8 2 11 8.5 ப a) How many Cigarate is Mary going to smoke? Explain. b) What is the socially optimal number of cigarettes? Explain. c) Suggest a Pigouvian tax that would induce Mary to smoke socially optimal number of cigarettes? d) Do you think it makes sense to ban smoking in this room altogether? Explain.
Imagine that there are two people in one room - Mary and Jane. Mary is smoking cigarettes. The table below shows Mary's Marginal Private Benefits (MPBM) and Marginal Private Costs (MPCM) of smoking each additional cigarette, as well as Marginal Damages (MDJ) to Jane from each additional cigarette: Number of cigarettes smoked MPBM MPCM MDJ 1 14 5 5.5 2 12 6 6 3 10 7 6.5 7 5 6 9 7.5 6 7 4 10 8 2 11 8.5 ப a) How many Cigarate is Mary going to smoke? Explain. b) What is the socially optimal number of cigarettes? Explain. c) Suggest a Pigouvian tax that would induce Mary to smoke socially optimal number of cigarettes? d) Do you think it makes sense to ban smoking in this room altogether? Explain.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter13: Positive Externalities And Public Goods
Section: Chapter Questions
Problem 24P: Assume that the marginal private costs of a film producing fuel-efficient can; is greater than the...
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