Assignment: Cost and Economic Analysis
Answer the following questions completely:
1. What is the relationship between NB and Pareto efficiency?
2. Explain what willingness to pay is.
3. What is the relationship between WTP and net benefits?
4. What is the significance of opportunity cost?
5. Why are Pareto efficiency policies impractical?
6. Explain the Potential Pareto efficiency criterion (also called Kaldor-Hicks criterion).
7. What can be done if impacts cannot be monetized?
8. What is qualitative CBA?
9. What is cost-effectiveness analysis?
10. Three mutually exclusive projects are being considered for a remote river valley. Project R, a recreational facility, has estimated benefits of $10 million and costs $8 million; project , a forest preserve with some recreational facilities, has estimated benefits of $13 million and costs $10 million; project W, q wilderness area with restricted public access, has estimated benefits of $5 million and costs $1 million. In addition, a road could be built for a cost of $4million that would increase the benefits of project R by $8 million, increase the benefits of project F by $5 million, and reduce the benefits of project W by $1 million. Even in the absence of any of the other projects, the road has estimated benefits of $2 million.
a. Calculate the benefit-cost ratio and net benefits for each possible alternative to the status quo. Note that there are seven possible alternatives to the status quo.: R, F, and W, both with and without road, and the road alone.
b. If only one of the seven alternatives can be selected, which should be selected according to the CBA decision rule?