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Cost-Benefit Analysis Lecture 1: Comparing Apples and Oranges

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Cost-Benefit Analysis Lecture 1: Comparing Apples and Oranges

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Questions and Answers

What is the broad purpose of Cost-Benefit Analysis (CBA)?

To monetize all costs and benefits

To compare different types of fruit

To help social decision making and make it more rational (correct)

To study accounting units

What is the typical justification for an intervention or policy according to the text?

Market success

Lack of government funding

Consumer preferences

Market failure (correct)

What does the text suggest should be used as indicators to compare the relative costs and benefits of different fruits?

Common accounting units

Price and taste only

Health benefits only

Monetized costs and benefits (correct)

What does the economist need to do in order to compare different projects through CBA, according to the text?

Monetize all costs and benefits (D) Signup and view all the answers

Whose willingness to pay (WTP) should be considered in a multigoal analysis?

Both rich and poor people's WTP (A) Signup and view all the answers

When working for a municipal government, should one adopt a local perspective or a universalistic perspective in cost-benefit analysis?

Both local and universalistic perspectives (C) Signup and view all the answers

Is it a moral or ethical concern to put a price on unique or sacred things in cost-benefit analysis?

Yes, it is a concern (A) Signup and view all the answers

Does cost-benefit analysis (CBA) undermine democracy according to the text?

Yes, it undermines democracy (C) Signup and view all the answers

What does the opportunity cost of using an input to implement a policy measure?

The value of the input in its best alternative use (D) Signup and view all the answers

Which factor is a crucial consideration in finding the ideal price to sell or value a product?

Willingness to pay (A) Signup and view all the answers

How are net benefits determined in Cost Benefit Analysis (CBA)?

By summing all benefits and subtracting all costs (B) Signup and view all the answers

What is a key limitation of Cost Benefit Analysis (CBA) mentioned in the text?

Difficult to quantify and monetize all relevant impacts as costs and benefits (B) Signup and view all the answers

According to the Kaldor-Hicks criteria, when does an activity move the economy closer to Pareto optimality?

When the gainers are willing to pay more to the losers than the minimum amount the losers are prepared to accept (D) Signup and view all the answers

What is the basis for the net benefits criterion in Cost-Benefit Analysis (CBA)?

Kaldor-Hicks improvement (C) Signup and view all the answers

In Cost-Benefit Analysis (CBA), what is used to place a peso/dollar value on the inputs required to implement policies?

Opportunity Cost (D) Signup and view all the answers

Based on the Hicks criterion, when does an activity move the economy toward Pareto optimality?

When the maximum amount the losers would pay the gainers to forgo a change is less than the minimum amount gainers would accept (D) Signup and view all the answers