Question

TRUE/FALSE/DEPENDS and justify your answer!

1. CBA analysts typically evaluate only one project at a time.
2. Because government expenditures are fixed each year, in asking people whether they favor expanding government programs, we should refrain from mentioning government costs.
3. Most people would be willing to pay less to obtain something than they would require to give up the same thing willingly.
4. The key difference between CBA and Cost-effectiveness analysis (CEA) is that CEA does not account for benefits.
5. In the Financial Post (part of Canada's National Post), Peter Shawn Taylor argues that the Cost/Benefit Analysis is the best way to evaluate a project. He is correct.
6. A CBA “With and Without Project” is essentially the same as the “Do Nothing” Alternative.
7. Because of a recent wave of jewelry store robberies, a city increases police surveillance of jewelry stores. The increased surveillance costs the city an extra $500,000 per year, but as a result, the amount of jewelry stolen falls. Specifically, without the increase in surveillance, jewelry with a retail value of $1 million would have been stolen. This stolen jewelry would have been fenced by the jewelry thieves for $600,000. The net social benefit resulting from the police surveillance program is $500,000.

Answer 1

A

Depends

If a CBA analyst has only one alternative to evaluate, then he or she will work on one project at a time. If there are multiple alternatives in project, then incremental CBA analysis will be conducted. So, it depends upon the number of projects (competing with each other).

B.

False

Cost should be mentioned so that effectiveness of the project will be estimated. For this purpose, C/B analysis as well as CEA can be conducted. Here, cost is required for the analysis and then, trade-off will be made to decide regarding the project expansion.

C.

True

It can be understood by the concept of  consumer surplus. Here, people like to pay the lower price than the maximum price they are willing to pay. It creates consumer welfare.

D.

True

Here, CEA considers the effectiveness of the investment and rank the alternatives. CEA identifies the number or size of effectiveness per dollar spent or any other unit in dollars. But, CBA uses cost and benefits. So, it is the major difference between the CEA and CBA.

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