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

The total benefit of the smoking ban for 1 million people living in Tobaccoville is \(1,000,000 * \$200 = \$200,000,000\). The total cost for the two large tobacco companies is \(2 * \$5,000,000 = \$10,000,000\). Comparing the total cost and total benefit, it appears that the benefits significantly outweigh the costs. However, the actual passing of the policy depends on various factors including the political environment, lobbying power of the affected companies, and public opinion. Therefore, although it seems likely to pass based on the cost-benefit analysis, the ultimate decision might be influenced by other factors as well.

Step-by-step solution

Calculate the total benefit

For each person living in Tobaccoville, the benefit from the smoking ban is $200. Since there are 1 million people living there, the total benefit can be found by multiplying the benefit per person by the number of people: Total benefit = 1,000,000 * $200

Calculate the total cost

There are two large tobacco companies in Tobaccoville, and the ban would cost each of them $5 million. The total cost can be found by multiplying the cost per company by the number of companies: Total cost = 2 * $5,000,000

Compare the total cost and total benefit

Now, we will compare the total cost to the total benefit to evaluate whether the policy might pass or not.

Make a conclusion about the policy's likelihood to pass

Based on the comparison of the total cost and total benefit, the outcome will be used to provide an opinion on whether the policy might pass or not. Remember that public policies typically get evaluated and decided by governmental bodies, so predicting the outcome is just speculative.

Key concepts

Public Policy Economics

Public policy economics is a branch of economics that analyzes the economic implications of government actions and how they influence the overall well-being of citizens. It's all about balancing costs and benefits to reach decisions that can positively impact society. For instance, consider the scenario in Tobaccoville: a smoking ban in restaurants could potentially be enacted as public policy.

Economists would execute a cost-benefit analysis to deduce if the anticipated benefits to the public health justify the economic repercussions to the tobacco industry. If the total benefits, valued at \(200 million for the population, outweigh the \)10 million in costs to tobacco companies, an economist might argue that the ban could lead to an overall net positive effect on the local economy. However, public policy decisions often encompass more than just numbers; they also consider political, ethical, and societal factors such as citizen freedom, public health, and industry impacts.

Economic Decision Making

Economic decision making involves choosing the option that provides the greatest benefit at the least cost, largely based on rational analysis of available information. When faced with a possible smoking ban, the policymakers in Tobaccoville must weigh the tangible benefits and costs we calculated—\(200 million in benefits against \)10 million in costs.

However, decision-making is not purely mathematical. It involves predicting outcomes under uncertainty, managing risk, and considering intangible factors like the quality of life improvements for non-smokers and potential job losses in the tobacco industry. The final decision on the smoking ban would also involve anticipating the reactions of various stakeholders and the long-term implications on the local economy and public health.

Government Intervention in Markets

Government intervention in markets is a contentious issue, as it usually involves regulations that can distort market outcomes. In the context of Tobaccoville's situation, imposing a smoking ban is a form of government intervention that could improve public health but would also interfere with the tobacco market.

Advocates for intervention might cite the positive externalities, like a healthier workforce and lower healthcare costs. Opponents, on the other hand, might highlight the loss of consumer choice and the negative impact on tobacco company revenues. The balance between beneficial intervention and the unintended consequences is delicate, and the final policy will greatly depend on the government's priority—whether it's the immediate economic impact on the tobacco companies or the long-term health benefits for the population.