Final answer:
The removal of a $25 toll for tourists could attract more visitors to the city but would result in lost revenue for the government. Townspeople could be willing to invest in a tax that benefits them. Total costs and benefits are balanced to predict the political viability of a policy, as seen with the proposed smoking ban in Tobaccoville.
Step-by-step explanation:
When analyzing the potential policy of the government removing the toll on a highway for tourists entering a city, various economic factors should be considered. Currently, 100,000 tourists visit the city each year, spending an average of $500 per visit. If the $25 toll is removed, it is expected that 105,000 tourists will visit. The direct benefit to tourists from not paying the toll would amount to $25 times 105,000, which equals $2,625,000. However, this would mean a loss of revenue for the city. If previously all 100,000 tourists paid the toll, the city would lose $2,500,000 in toll revenues. With the subsidy, assuming tourists spend the same amount per visit, the increase in visitors would generate an additional $2,500,000 in revenue (5,000 additional tourists times $500).
In the scenario involving the townspeople who stand to benefit by $300 if a tax passes, theoretically, they could collectively be willing to spend up to $3 million to ensure the passing of the tax. For the Tobacco ville case, the total benefits would be $200 million (1 million people times $200 each) while the total costs would be $10 million ($5 million for each of the two tobacco companies). Weighing these costs and benefits could help estimate whether the policy, ban or tax, would be politically viable.