Question

Say that the government is considering a ban on smoking in restaurants in Tobaccoville. There are 1 million people living there, and each would benefit by \(200 from this smoking ban. However, there are two large tobacco companies in Tobaccoville and the ban would cost them \)5 million each. What are the proposed policy's total costs and benefits? Do you think it will pass?

Short answer

Yes, the Ban is likely to pass. As : the Total Benefits = $200 million, which is more than Total Costs = $10 million.

Step-by-step solution

Total Benefit Concept

1 million people are having benefit of $200 each.

So, Total Benefit = Per person benefit x Benefit per person

Hence, Total Benefit = 200 x 1 million = $200 million

Total Cost Concept

2 big tobacco companies are incurring losses of $5 million each.

So, Total Cost = Per company benefit x Benefit per company

Hence, Total Benefit = 2 x 5 million = $10 million

Decision Explanation

Decision about a public policy is taken on the basis of comparing Total Benefits & Total Costs.

As smoking ban in restaurants is leading Total Benefits ($200 million) > Total Costs ($10 million), so the ban should be passed.