Exam 2: Cost-Benefit Analysis and the Value of a Life

Uni-Go Company makes motorized unicycles. Uni-Go is deciding whether to include a safety feature that would cost $6 for each unicycle. Uni-Go estimates the probability of death without the safety feature is 1/90,000 and the death cost per unicycle is $5.55. What is the value Uni-Go has placed on a life?

Erik can work as a forest ranger, where the probability of being killed in a work-related accident is 1/6,000, or he can earn an additional $800 a year by working as a game warden, where the probability of being killed in a work-related accident is 3/6,000. Using the compensating differential approach and the above information, what is the value of Erik's life?

If the risk associated with a particular outcome is ________, or the value of a particular outcome is ________, then cost-benefit analysis might lead people to take precautions that are not cost-justified.

A chain saw manufacturer can make its chain saws safer by adding a titanium chain guard to its products. Adding the titanium chain guard costs $35 per chain saw. The manufacturer estimates that this will prevent 10 injuries for every 5,000 chain saws sold and that, on average, each injury causes $15,000 of harm. The manufacturer

You are trying to decide if you should take a vacation. Your cost-benefit analysis indicates that the benefits outweigh the costs. You should

Which of the following activities exposes others to risk?

All else equal, people with risky jobs tend to make more money than people with safe jobs.

A manufacturer of grenade launchers estimates that the probability of a fatal accident caused by the design of its product is 1/80,000 and the value of a life lost is $2 million. The manufacturer can change the design to eliminate that chance for $20 per grenade launcher and is prepared to incorporate all cost-justified precautions. Will the manufacturer change the design? What would the benevolent social planner think about the manufacturer's decision if the true value of a life is actually $1.5 million?

Bruno makes tamales to sell at the local farmer's market, and each month he sells all he makes. Each month, tamales had been selling for $10 per dozen and Bruno made 80 dozen tamales at a total cost of $500. It costs Bruno $100 to rent a booth at the farmer's market. This month, as Bruno is getting ready to pay management the $100 booth rental fee and display his tamales, he discovers that he will need to cut his price to $5 per dozen to compete with other tamale sellers. Bruno should

Uni-Go Company makes motorized unicycles. Uni-Go is deciding whether to include a safety feature that would cost $6 for each unicycle. Uni-Go estimates the probability of death without the safety feature is 1/90,000 and the death cost per unicycle is $5.55. If Uni-Go has underestimated by one-half the true value of a life, what is the true death cost per unicycle?

Javier can earn $80,000 a year working as a firefighter, or $78,000 a year working as a police officer. The probability of death from working as a firefighter is 1/2,000, and the probability of death from working as a police officer is 1/4,000. Using the compensating differential approach and the above information, what is the value of Javier's life?

In wrongful death lawsuits, courts typically take into consideration the victim's character and personality when assessing damages.

Human beings are generally very good at accurately estimating probabilities.

A person's ________ indicate her willingness to expose others to risk and that she is doing it for ________.

Based on the lost-income approach, which of the following 30 year old males would most likely be worth the most in terms of the value of his life?

If a conscientious manufacturer underestimates the probability of his product killing someone, the manufacturer will likely take precautions that are not cost justified.

Uni-Go Company makes motorized unicycles. Uni-Go is deciding whether to include a safety feature that would cost $6 for each unicycle. Uni-Go estimates the probability of death without the safety feature is 1/90,000 and the death cost per unicycle is $5.55. If Uni-Go has underestimated the probability of death and the true probability of death is 1/80,000, then the true death cost per unicycle is

Darnell can work on an oil rig, where the probability of being killed in a work-related accident is 4/6,000, or he can earn work as a lumberjack, where the probability of being killed in a work-related accident is 1/6,000. Using the compensating differential approach, the value of Darnell's life is $6 million. How much more per year will working on an oil rig pay than working as a lumberjack?

Commercial airlines have two primary suppliers of large jet aircraft: Boeing and Airbus. Since millions of people fly with commercial airlines each year, should these aircraft manufacturers be required to incorporate every possible safety feature into the aircraft they manufacture? Should the manufacturers be allowed to incorporate no safety features? If some safety considerations are to be required, how would an economist decide on which features to include and which not to include?

In terms of exposing others to risk, explain if there is a difference between you choosing to text while driving and a company selling tablet computers where the batteries have been known to explode when the tablet is left on for a long period of time.