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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.

Essentials of Economics (MindTap Course List)
Essentials of Economics (MindTap Course List)
8th Edition
ISBN:9781337091992
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 6QR
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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.
Transcribed Image Text: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.
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