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Many towns and cities on the northeast and west coasts

1. Many towns and cities on the northeast and westcoasts have passed bans on smoking in restaurantsand bars in the past decade. What is the economicrationale behind these bans? Would there be similarrationales for banning smoking in automobiles?Apartment buildings? Houses? (10’) 2. Bill’s demand for hamburgers (a private good) is Q= 21 * 6P and Ted’s demand is Q = 6 e 3P. a. Write down an equation for the social marginalbene?t of the consumption of ham- burgerconsumption. (5’) b. Now suppose that hamburgers are a public good.Write down an equation for the social marginalbene?t of hamburger consumption. (5’) 3. Zorroland has a large number of people who arealike in every way. Boppoland has the same numberof people as Zorroland, with the same averageincome as Zorroland, but the distribution ofincomes is wider. Why might Boppoland have ahigher level of public good provision thanZorroland? (10’) 4. Andrew, Beth, and Cathy live in Lindhville.Andrew’s demand for bike paths, a public good, isgiven by Q = 24 — 4P. Beth’s demand is Q = 14 — P,and Cathy’s is Q = 5 – PB. The marginal cost ofbuilding a bike path is MC = 18. The towngovernment decides to use the following procedurefor deciding how many paths to build. It asks eachresident how many paths he wants, and it builds thelargest number asked for by any resident. To pay forthese paths, it then taxes Andrew, Beth, and Cathythe prices a, b, and e per path, respectively, where a+ b + c = MC. (The residents know these tax ratesbefore stating how many paths they want.) a. What is the social optimum? (5’) b. If the taxes are set so that each resident shares thecost evenly (a = b = c), how many paths will getbuilt? (5’) 0. Can the government achieve the social optimumby setting the correct tax prices a, b, and c? Whatprices should it set? Assume that the governmentknows the demand ?rnctions. (extra credit 5’)

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