Cost-Benefit Analysis Lecture 1: Comparing Apples and Oranges

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16 Questions

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

To help social decision making and make it more rational

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

Market failure

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

Monetized costs and benefits

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

Monetize all costs and benefits

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

Both rich and poor people's WTP

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

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

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

Yes, it undermines democracy

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

The value of the input in its best alternative use

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

Willingness to pay

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

By summing all benefits and subtracting all costs

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

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

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

Kaldor-Hicks improvement

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

Opportunity Cost

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

This quiz covers the concept of cost-benefit analysis and its application to comparing different options. It explores the process of monetizing costs and benefits to facilitate comparison, using the analogy of comparing apples and oranges as an example.

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