3. The Women's National Basketball Association (WNBA) has awarded a new franchise for a basket- ball team to be established in Metropolis, but only if the new team has a new arena in which to play. Proponents of the franchise argue that the team will generate new business, provide jobs, increase tax revenue and promote tourism in Metropolis. Opponents argue that most of the money spent on basketball games will come from Metropolis-area residents who will simply reduce their spending on other activities. Thus there will be few new jobs, little increase in tax revenue and few new tourists coming to Metropolis. Others say the new stadium will cause property values to fall and create traffic, parking and noise problems. Voters have the following three proposals before them: Proposal 1: No city money should be used in the construction of the arena. Proposal 2: The city should place a tax on each ticket sold to pay for the arena. Proposal 3: The city should build the arena and lease the right to play there to the basketball team at a subsidized rate. Using your knowledge of externalities, answer the following questions. (A) What assumption does Proposal 1 make about the size of external costs compared with exter- nal benefits? Explain. (B) How does Proposal 2 change the composition of total costs and benefits to adjust for external- ities (both positive and negative)? (C) What assumptions does Proposal 3 make about external costs and benefits to reach an efficient solution