The government of a small town has decided to ban smoking in all restaurants,stores,and government offices.This is an example of the principle that:
A) one person's spending is another person's income.
B) when markets fail to achieve efficiency,government intervention can improve society's welfare.
C) there are gains from trade.
D) "How much" is a decision at the margin.

Question

Quizplus · Accepted Answer

The government's decision to ban smoking in public places is an example of government intervention to improve society's welfare in situations where the market fails to achieve efficiency. Secondhand smoking is a negative externality that affects non-smokers' health, and the market does not capture the full social cost imposed by smokers. Therefore, the government intervenes by implementing regulations to internalize the externality and improve society's overall welfare.

The Government of a Small Town Has Decided to Ban