Exam (elaborations)
cost-benefit analysis
- Course
- Econ 454
- Institution
- University Of Washington - Seattle Campus
cost-benefit analysis
[Show more]
Seller
Follow
Content preview
ECONOMICS 454ANSWERS TO FIRST EXAM
AUTUMN 2022
I.
20 A proposed Washington highway from the Canadian border to the
Oregon border would reduce users’ travel costs and risks. The
construction costs will be shared by the State of Washington (15%) and
the Federal government (85%). Possible perspectives with respect to
standing are state, national, and global. Which perspective is likely to
yield the largest estimate of aggregate net benefits? The smallest
estimate of aggregate net benefits? Explain why.
The state perspective ignores 85% of the cost. Since the percentage of
benefits ignored by using the state perspective is most likely to be much
less than 85%, the state perspective is likely to give the largest estimate
of net benefits. The next largest would be obtained with a global
perspective (same cost as the national perspective and more benefits)
and the least by the national perspective.
II. Consider a society with three consumers, Smith, Jones, and Brown.
SMUY is 1.1 for Smith, 0.6 for Jones, and 0.5 for Brown. A project
would have net benefits of -$100 for Smith, $120 for Jones, and $20 for
Brown. Would this project satisfy the following criteria? Explain why or
why not in each case.
15 A. The Social Welfare Criterion.
No. The SWC is that the weighted sum of net benefits is positive, where
each individual’s weight is equal to their SMUY. This is not satisfied for
this project, because (1.1)(-100) + (0.6)(120) + (0.5)(20) = −28.
15 B. The Potential Compensation Criterion.
Yes. The PCC is that the unweighted sum of net benefits is positive.
This is satisfied for this project, −100 + 120 + 20 = 40.
15 C. Explain why the derivation of the Social Welfare Criterion
requires the assumption that consumers maximize utility.
If, and only if, consumers maximize utility, then λiPj can be substituted
for ∂Ui/∂Xij for all individuals, i, and goods, j.
1
The benefits of buying summaries with Stuvia:
Guaranteed quality through customer reviews
Stuvia customers have reviewed more than 700,000 summaries. This how you know that you are buying the best documents.
Quick and easy check-out
You can quickly pay through credit card or Stuvia-credit for the summaries. There is no membership needed.
Focus on what matters
Your fellow students write the study notes themselves, which is why the documents are always reliable and up-to-date. This ensures you quickly get to the core!
Frequently asked questions
What do I get when I buy this document?
You get a PDF, available immediately after your purchase. The purchased document is accessible anytime, anywhere and indefinitely through your profile.
Satisfaction guarantee: how does it work?
Our satisfaction guarantee ensures that you always find a study document that suits you well. You fill out a form, and our customer service team takes care of the rest.
Who am I buying these notes from?
Stuvia is a marketplace, so you are not buying this document from us, but from seller 1420871303N. Stuvia facilitates payment to the seller.
Will I be stuck with a subscription?
No, you only buy these notes for $8.39. You're not tied to anything after your purchase.
Can Stuvia be trusted?
4.6 stars on Google & Trustpilot (+1000 reviews)
62890 documents were sold in the last 30 days
Founded in 2010, the go-to place to buy study notes for 14 years now