Deck 8: Cost-Benefit Analysis

Question 1

The opportunity cost of an input that is sold in a perfectly competitive market is:

A) greater than the price of the input.
B) less than the price of the input.
C) equal to the price of the input.
D) not related to the price of the input.

Answer 1

equal to the price of the input.

Question 2

The county supervisor uses an estimate of how much residents pay to drive to the public swimming pool in the next county as an indication of how much a swimming pool is worth to county residents.This is an example of:

A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) social discounting.

Answer 2

revealed preference valuation.

Question 3

In a perfectly competitive labor market with freely adjusting hours,what is the value of an hour?

A) the value of additional health benefits received at work
B) the hourly wage
C) less than the hourly wage
D) more than the hourly wage

Answer 3

the hourly wage

Question 4

In which of the following circumstances is contingent valuation the only option to value the public good?

A) federal government valuing the cost of building a highway
B) local government valuing the additional cost of weekend garbage pickup
C) state government valuing various options to raise revenues
D) federal government valuing the cost of saving bald eagles

Question 5

The benefits of a high-speed rail system from Sacramento to San Diego do NOT include:

A) improved productivity resulting when commuters are able to work on the train.
B) lower medical expenses resulting from fewer automobile accidents.
C) the value of the land needed for the project.
D) less traffic and reduced use of fuel.

Question 6

The county supervisor is considering building a community pool and has gathered data on how much residents are willing to pay.He sums up all of the valuations he has received and compares that number to the estimated cost.This is an example of:

A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) social discounting.

Question 7

If an input is sold in a perfectly competitive market,its price is equal to its:

A) average cost.
B) opportunity cost.
C) cost-benefit ratio.
D) cash flow premium.

Question 8

Which of the following is the approach taken to ask individuals how they value an option they are not now choosing?

A) contingent valuation
B) revealed preference
C) cost-benefit analysis
D) social discounting

Question 9

Which of the following is the approach taken to determine how individuals value an option by looking at their actions?

A) contingent valuation
B) revealed preference
C) cost-benefit analysis
D) social discounting

Question 10

What is the present discounted value of $400 a year from now and $500 two years from now if the interest rate is 10%?

A) $676.18
B) $743.80
C) $818.18
D) $776.86

Question 11

If the present discounted value of $85 next year is $80 this year,what is the implied annual rate of interest?

A) 3.03%
B) 5%
C) 5.88%
D) 6.25%

Question 12

The accounting method that calculates costs solely by adding up what the government pays for inputs to a project and calculates benefits solely by adding up government revenues generated by the project is called the _____ accounting approach.

A) contingent valuation
B) cash flow
C) opportunity cost
D) social discounting

Question 13

Suppose you have 3 years to live and you value each year of life at $7 million but have a discount rate of 5%.How much do you value the rest of your life in today's dollars?

A) $20 million
B) $19.06 million
C) $21 million
D) $18.14 million

Question 14

Which of the following is NOT a problem with using contingent valuations?

A) Valuations depend on isolation of the issue.
B) Valuations depend on the order in which the issues are given.
C) Valuations are not consistent with respect to the size of the task.
D) Valuations are based only on options individuals are currently choosing.

Question 15

The value of an input in its next best use is the:

A) cost-benefit ratio.
B) explicit cost.
C) marginal benefit.
D) opportunity cost.

Question 16

If the present discounted value of $134 next year is $115 this year,then what is the implied annual rate of interest?

A) 7.63%
B) 9.5%
C) 13.34%
D) 16.52%

Question 17

Asking someone to quantify how much he or she would benefit from a new highway is an example of:

A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) social discounting.

Question 18

_____ analysis consists of a comparison of the projected expenses and benefits of public goods projects to decide if they should be undertaken.

A) Contingent valuation
B) Cash flow
C) Cost-benefit
D) Social discounting

Question 19

If the present discounted value of $400 next year is $380 this year,what is the implied rate of interest?

A) 5.26%
B) 5%
C) 2.56%
D) 2.60%

Question 20

The county supervisor sends out a survey via U.S.mail asking residents how much they are each willing to pay toward a new community swimming pool.This is an example of:

A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) social discounting.

Question 21

Which of the following statements is TRUE of a cost-benefit analysis of a potential government project?

A) Both asset value increases to the property owners and income increases to the property owners should be counted.
B) Neither asset value increases to the property owners nor income increases to the property owners should be counted.
C) The net increase in jobs in a community is a benefit.
D) Future costs and benefits should be discounted to present values before being compared.

Question 22

The search for the least costly way of providing a desired public good is:

A) contingent valuation.
B) revealed preference.
C) social discounting.
D) cost-effectiveness analysis.

Question 23

Suppose the value of life is estimated by comparing the earnings and probabilities of death from working on a fishing boat in Alaska with the earnings and probabilities of death from working in a fish processing plant in Alaska.The analysis concludes that a year of life is valued at $6 million.If risk-loving people take the jobs on the boats and risk-averse people take jobs at the processing plants,the estimate will:

A) overstate by at least two times the value of a life for the average person.
B) overstate by an unknown amount the value of a life for the average person.
C) be approximately equal to the value of a life for the average person.
D) understate by an unknown amount the value of a life for the average person.

Question 24

Suppose you can take one of two summer jobs.In the first job as a flight attendant,with a salary of $5,000,you estimate the probability you will die is 1 in 40,000.Alternatively,you could drive a truck transporting hazardous materials,which pays $12,000 and for which the probability of death is 1 in 10,000.Suppose that you're indifferent between the two jobs except for the pay and the chance of death.If you choose the job as a flight attendant,what does this say about the value you place on your life?

Question 25

The method preferred by economists for valuing life is to use:

A) contingent valuation.
B) revealed preference.
C) government preference.
D) the present value of lifetime earnings.

Question 26

A city is trying to estimate the most money it should offer to contractors as an incentive for them to finish a disruptive road project early.The transportation project lengthens transport times by 10 hours per week for 40,000 workers.Assume that all workers are paid $10 per hour in a perfectly competitive labor market.What is the most that the city should pay to the contractors as an incentive for completing the project four weeks early?

Question 27

Suppose government can pursue up to three projects.The first has benefits of $1,080 and costs of $1,000; the second has benefits of $1,180 and costs of $1,000; the third has benefits of $1,230 and costs of $1,000.Suppose that it costs $0.20 for the government to raise a dollar in revenues.Which project(s)should the government pursue?

A) the first project
B) the second project
C) the third project
D) None of the answers is correct.

Question 28

If an individual has the option of spending $10,000 to reduce the probability of death and the individual chooses not to spend $10,000,this implies that the:

A) value of life is less than $10,000.
B) value of life is exactly $10,000.
C) individual does not place an infinite value on life.
D) individual places an infinite value on life.

Question 29

The county supervisor decides that a new community swimming pool should be constructed based on the projected construction and operating expenses as well as estimates of how much residents would be willing to pay for the pool.This approach reflects:

A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) social discountings.

Question 30

Suppose that a city in your state is trying to attract a sports tournament,which would entail spending a significant amount of money on marketing of the event and other costs that have no intrinsic value to residents of the city.The city leaders argue that hosting the sports tournament will increase commerce activity around the city because of the visitors who will be in town for the tournament.Consequently,they are lobbying you as the state governor to give them grants,which they say (credibly)is the only way they can afford to host the tournament.For your decision,should it matter whether it is a tournament between in-state teams or national teams? Explain.

Question 31

The revealed preference approach to valuing a life focuses on:

A) survey results.
B) actions.
C) lost wages.
D) medical expenses.

Question 32

Based on the revealed preference approach,the consensus value placed on a life is approximately equal to:

A) $825,000.
B) $3 million.
C) $9.6 million.
D) $22.3 million.

Question 33

The county supervisor will determine which company should construct the new public swimming pool by collecting bids from various contractors.This is an example of:

A) contingent valuation.
B) revealed preference valuation.
C) cost-benefit analysis.
D) cost-effectiveness analysis.

Question 34

Suppose a high-speed rail system is proposed that will save commuters from the suburbs a lot of valuable time.If the high-speed rail system is built,the value of homes in the suburbs will increase because of the easier commute.When estimating the potential benefits of the high-speed rail system:

A) it is important not to double count benefits since the rise in home values is caused by the time savings.
B) it is important to count both the rise in home values and the value of time saved by commuters.
C) neither the rise in home values nor the value of time saved by commuters is considered a benefit of investing in the high-speed rail system.
D) the increased value of suburban homes is considered a cost rather than a benefit.

Question 35

Suppose the government can pursue up to three projects.The first has benefits of $300 and costs of $270; the second has benefits of $580 and costs of $460; the third has benefits of $90 and costs of $80.Suppose that it costs $0.15 for the government to raise $1 in revenues.Which project should the government pursue?

A) the first project
B) the second project
C) the third project
D) the project with the largest benefit