Question 1

In the expression for present value of benefits (PVB), Σ(bt/[1+rs]t), with bt = Bt/(1 + p)t,

Accepted Answer

A)  bt represents incremental nominal benefits 
B)  Bt represents incremental real benefits 
C)  bt represents incremental real benefits 
D)  p stands for the opportunity cost of money 
A)  bt represents incremental nominal benefits 
B)  Bt represents incremental real benefits 
C)  bt represents incremental real benefits 
D)  p stands for the opportunity cost of money

Question 2

In conducting a benefit-cost analysis, it is more difficult to assign a dollar value to costs than to benefits.

Accepted Answer

A) True 
 B)False

Question 3

The discount rate used for public policy decision making is called the social discount rate.

Accepted Answer

A) True 
 B)False

Question 4

The present value of $525 received one year from today, assuming an annual rate of return of 5 percent is

Accepted Answer

A)  $551.25 
B)  $525 
C)  $500 
D)  none of the above 
A)  $551.25 
B)  $525 
C)  $500 
D)  none of the above

Question 5

If the nominal value of a benefit in 2011 is $1,500, its real value in 2012, assuming a 3 percent inflation rate, is $1,545.

Accepted Answer

A) True 
 B)False

Question 6

When benefit-cost analysis is used to facilitate U.S. public policy decisions,

Accepted Answer

A)  the discount rate is selected by the individual policy maker 
B)  no adjustment can be made for inflation, since the inflation rate is not known in advance 
C)  the discount rate used should reflect the social opportunity cost of funds 
D)  only incremental costs are adjusted for time differences 
A)  the discount rate is selected by the individual policy maker 
B)  no adjustment can be made for inflation, since the inflation rate is not known in advance 
C)  the discount rate used should reflect the social opportunity cost of funds 
D)  only incremental costs are adjusted for time differences

Question 7

For a given policy option, if (PVB - PVC) is greater than 1, that policy option is considered to be feasible.

Accepted Answer

A) True 
 B)False

Question 8

The present value of benefits (PVB) is found as

Accepted Answer

A)  the discounted value of benefits for a single period without adjusting for inflation 
B)  Σ(bt/[1+rs]t), with bt = Bt/(1 + p)t 
C)  Σ(bt/[1-rs]t), with bt = Bt/(1 + p)t 
D)  Σ(bt/[1+rs]t), with bt = Bt/(1 - p)t 
A)  the discounted value of benefits for a single period without adjusting for inflation 
B)  Σ(bt/[1+rs]t), with bt = Bt/(1 + p)t 
C)  Σ(bt/[1-rs]t), with bt = Bt/(1 + p)t 
D)  Σ(bt/[1+rs]t), with bt = Bt/(1 - p)t

Question 9

Present value determination is a procedure that

Accepted Answer

A)  accounts for the opportunity cost of money 
B)  adjusts for changes in the general price level 
C)  discounts a present value into its future value 
D)  compares the present value of benefits to the present value of costs 
A)  accounts for the opportunity cost of money 
B)  adjusts for changes in the general price level 
C)  discounts a present value into its future value 
D)  compares the present value of benefits to the present value of costs

Question 10

The present value of net benefits (PVNB) is

Accepted Answer

A)  found as (PVB - PV
C)  
B)  equal to the ratio of PVB to PVC 
C)  equal to the ratio of PVC to PVB 
D)  not relevant to benefit-cost analysis 
A)  found as (PVB - PV
C)  
B)  equal to the ratio of PVB to PVC 
C)  equal to the ratio of PVC to PVB 
D)  not relevant to benefit-cost analysis

Question 11

Present value determination is a procedure that corrects a value for the rate of inflation.

Accepted Answer

A) True 
 B)False

Question 12

According to the text application on the UK Climate Change Act, the Impact Assessment presented for this policy when proposed, gave benefit and cost estimates of the proposed regulation up to 2050.

Accepted Answer

A) True 
 B)False

Question 13

According to President Reagan's Executive Order 12291,

Accepted Answer

A)  economic criteria had to be met when reviewing any major regulation 
B)  a major regulation was defined as one having an annual effect of $1 million or more 
C)  only least cost is needed in evaluating major rules, with no consideration for maximizing net benefits 
D)  incremental benefits of policy must be maximized, with no consideration for minimizing incremental costs 
A)  economic criteria had to be met when reviewing any major regulation 
B)  a major regulation was defined as one having an annual effect of $1 million or more 
C)  only least cost is needed in evaluating major rules, with no consideration for maximizing net benefits 
D)  incremental benefits of policy must be maximized, with no consideration for minimizing incremental costs

Question 14

If the value of an environmental benefit realized two years from today is $970.20, and the annual rate of return is 5 percent, then its present discounted value is

Accepted Answer

A)  $924 
B)  $880 
C)  $1,018.71 
D)  $1069.65 
A)  $924 
B)  $880 
C)  $1,018.71 
D)  $1069.65

Question 15

All of the following are true EXCEPT

Accepted Answer

A)  President Reagan was the first U.S. president to call for the use of economic criteria when evaluating policy 
B)  President Reagan's Executive Order 12291 required the use of a Regulatory Impact Analysis (RI
A)  when major regulations were being considered 
C)  During his presidency, Clinton did not issue any executive order to continue Reagan's commitment to using economic criteria in policy evaluation 
D)  President Obama issued an executive order to support and expand upon President Clinton's executive order requiring benefits to justify the costs of a significant regulation 
A)  President Reagan was the first U.S. president to call for the use of economic criteria when evaluating policy 
B)  President Reagan's Executive Order 12291 required the use of a Regulatory Impact Analysis (RI
A)  when major regulations were being considered 
C)  During his presidency, Clinton did not issue any executive order to continue Reagan's commitment to using economic criteria in policy evaluation 
D)  President Obama issued an executive order to support and expand upon President Clinton's executive order requiring benefits to justify the costs of a significant regulation

Question 16

The Los Angeles area has long been plagued by urban smog. Suppose that one of several ozone-reducing policy options is being evaluated by economists using benefit-cost analysis.
a. Since the policy will be implemented over time, economists assume that per resident benefits will accrue in increments of $500 (in real terms) at the end of each of the next three years. Find the present value of benefits (PVB) in nominal terms for each resident, assuming an annual inflation rate of 4% and a nominal annual discount rate of 9%.
b. Assume there are 2 million adult residents in the Los Angeles area to whom the per-resident PVB would accrue. Also assume that the estimated present value of costs (PVC) for this policy option is $2 billion.
(i). Is this option feasible? Why or why not? Show your supporting calculations.
(ii). If two other policy options have benefit-cost ratios of 1.23 and 1.05, can you determine which of the three is the most efficient? If so how? If not, why not?

Accepted Answer

1a. PVB Calculations
Nominal Conversion:

Question 17

Deflating refers to

Accepted Answer

A)  discounting a future value into its present value by accounting for the opportunity cost of money 
B)  converting a real value into its associated nominal value 
C)  using the discount rate to correct for environmental benefits or costs accruing in some future time period 
D)  none of the above 
A)  discounting a future value into its present value by accounting for the opportunity cost of money 
B)  converting a real value into its associated nominal value 
C)  using the discount rate to correct for environmental benefits or costs accruing in some future time period 
D)  none of the above

In the expression for present value of benefits (PVB), Σ(b_t/[1+r_s]^t), with b_t= B_t/(1 + p)^t,

In conducting a benefit-cost analysis, it is more difficult to assign a dollar value to costs than to benefits.

The discount rate used for public policy decision making is called the social discount rate.

The present value of $525 received one year from today, assuming an annual rate of return of 5 percent is

If the nominal value of a benefit in 2011 is $1,500, its real value in 2012, assuming a 3 percent inflation rate, is $1,545.

When benefit-cost analysis is used to facilitate U.S. public policy decisions,

For a given policy option, if (PVB - PVC) is greater than 1, that policy option is considered to be feasible.

The present value of benefits (PVB) is found as

Present value determination is a procedure that

The present value of net benefits (PVNB) is

Present value determination is a procedure that corrects a value for the rate of inflation.

According to the text application on the UK Climate Change Act, the Impact Assessment presented for this policy when proposed, gave benefit and cost estimates of the proposed regulation up to 2050.

According to President Reagan's Executive Order 12291,

If the value of an environmental benefit realized two years from today is $970.20, and the annual rate of return is 5 percent, then its present discounted value is

All of the following are true EXCEPT

Deflating refers to

The Role of Economics in Environmental Management

Modeling the Market Process: a Review of the Basics

Modeling Market Failure

Conventional Solutions to Environmental Problems: Command-And-Control Approach

Economic Solutions to Environmental Problems: the Market Approach

Environmental Risk Analysis

Assessing Benefits for Environmental Decision Making

Assessing Costs for Environmental Decision Making

Defining Air Quality: the Standard-Setting Process

Improving Air Quality: Controlling Mobile Sources

Improving Air Quality: Controlling Stationary Sources

Global Air Quality: Policies for Ozone Depletion and Climate Change

Defining Water Quality: the Standard-Setting Process

Improving Water Quality: Controlling Point and Nonpoint Sources

Protecting Safe Drinking Water

Managing Hazardous Solid Waste and Waste Sites

Managing Municipal Solid Waste

Controlling Pesticides and Toxic Chemicals

Sustainable Development: International Environmental Agreements and International Trade

Sustainable Approaches: Industrial Ecology and Pollution Prevention

Filters

Exam 9: Benefit-Cost Analysis in Environmental Decision Making

In the expression for present value of benefits (PVB), Σ(bt/[1+rs]t), with bt = Bt/(1 + p)t,

In conducting a benefit-cost analysis, it is more difficult to assign a dollar value to costs than to benefits.

The discount rate used for public policy decision making is called the social discount rate.

The present value of $525 received one year from today, assuming an annual rate of return of 5 percent is

If the nominal value of a benefit in 2011 is $1,500, its real value in 2012, assuming a 3 percent inflation rate, is $1,545.

When benefit-cost analysis is used to facilitate U.S. public policy decisions,

For a given policy option, if (PVB - PVC) is greater than 1, that policy option is considered to be feasible.

The present value of benefits (PVB) is found as

Present value determination is a procedure that

The present value of net benefits (PVNB) is

Present value determination is a procedure that corrects a value for the rate of inflation.

According to the text application on the UK Climate Change Act, the Impact Assessment presented for this policy when proposed, gave benefit and cost estimates of the proposed regulation up to 2050.

According to President Reagan's Executive Order 12291,

If the value of an environmental benefit realized two years from today is $970.20, and the annual rate of return is 5 percent, then its present discounted value is

All of the following are true EXCEPT

Deflating refers to

The Role of Economics in Environmental Management

Modeling the Market Process: a Review of the Basics

Modeling Market Failure

Conventional Solutions to Environmental Problems: Command-And-Control Approach

Economic Solutions to Environmental Problems: the Market Approach

Environmental Risk Analysis

Assessing Benefits for Environmental Decision Making

Assessing Costs for Environmental Decision Making

Defining Air Quality: the Standard-Setting Process

Improving Air Quality: Controlling Mobile Sources

Improving Air Quality: Controlling Stationary Sources

Global Air Quality: Policies for Ozone Depletion and Climate Change

Defining Water Quality: the Standard-Setting Process

Improving Water Quality: Controlling Point and Nonpoint Sources

Protecting Safe Drinking Water

Managing Hazardous Solid Waste and Waste Sites

Managing Municipal Solid Waste

Controlling Pesticides and Toxic Chemicals

Sustainable Development: International Environmental Agreements and International Trade

Sustainable Approaches: Industrial Ecology and Pollution Prevention

Filters

In the expression for present value of benefits (PVB), Σ(b_t/[1+r_s]^t), with b_t= B_t/(1 + p)^t,