In each of the following situations, discuss whether free markets are likely to provide Pareto-optimal levels of the goods, or whether a market failure distorts the markets.
(a) Although a restaurant has a separate smoking section, the smoke from that section spreads to the nonsmoking part of the dining area. As a result, some of the nonsmokers leave before they have finished their dinners.
(b) A restaurant owner decides on his own to separate, both physically and through ventilation systems, the smoking and nonsmoking sections of his restaurant. Both smokers and nonsmokers find the arrangement acceptable.
(c) Radon, a naturally occurring gas, increases the risk of cancer in poorly ventilated basements in areas with particular geologic characteristics. For purposes of this question, assume that radon affects only homeowners living in the house, and the homeowner can easily find out radon levels in the house. Ventilating the radon out of a home costs about $1000.
(d) If a homeowner takes care of the radon in his home, he may reduce radon levels in neighbors' houses as well.