cost benefit analysis

Question 1

NPV formula

Answer 1

(B0 - C0) + (B1 - C1) / (1 + r)^1 + (B2 - C2) / (1 + r)^2

Question 2

benefit cost ration

Answer 2

((B1 / (1 + r)^1) / (C1 / (1 + r)^1)

flaw: units go away

Question 3

cost measurements are founded on opportunity costs

Answer 3

market price exists and reflects social values:
- perfectly competitive market with little unemployed resources
market price exists but doesn’t reflect social values:
- unemployed resources
- market failures
market prices don’t exist:
- externalities
- public goods

Question 4

producer/consumer benefits are to be measured as producer/consumer surplus changes

Answer 4

basically know how to find what was added or lost from surplus

Question 5

zero - sum transfers

Answer 5

transfer payments: do not represent the production of goods and services

Question 6

temporal aggregation will employ discounting

Answer 6

argument for lower DR:
- government must view itself as a trustee for the future, therefore, it should impose a lower rate than shortsighted individuals would deem best
argument for higher DR:
- must consider the true oppurtunity of a government project and the discount rate should reflect the true opportunity cost of using resources in the project

Question 7

intangibles and incommensurables should not be ignored

Answer 7

commensurable impact: is an effect on human welfare that can be valued using reasonable economic techniques
incommensurable: effect that cannot eb valued using reasonable techniques, but can be physically measured
intangible: effect cannot be counted nor economically valued
must be reported and discussed

Question 8

full disclosure of all assumptions, data, techniques used, etc

Answer 8

detailed discussion of how costs and benefits will be distributed

Question 9

primary effects

Answer 9

effects that can be directly attributed to the project

Question 10

secondary effects

Answer 10

ripple effects because of linkages in the economy
ex: if draw from an unemployed resource count as a benefit
if full employment don’t count

Question 11

CBA importance

Answer 11

• identification of the costs and benefits and discounting

- quantification of the costs and benefits and discounting

Question 12

pro of CBA

Answer 12

can provide valuable information

Question 13

con of CBA

Answer 13

• distributional effects
• problems with estimating costs and benefits
• future generations are not represented

Question 14

social impact analysis

Answer 14

effects on the distribution of income as well as the psychological, social, and well being of individuals impacted by a project

Question 15

regulatory impact analysis

Answer 15

changes in our physical and biological surroundings as they are perceived to impact the quality of life