Question

1. Explain briefly what the following mean:
   1. Cost benefit analysis
   2. Economic impact analysis
   3. Cost effectiveness analysis
   4. Hedonic pricing
   5. Shadow pricing

Answer 1

The brief explanation of the following are as follows:
1) Cost benefit analysis: This kind of analysis is quite famous in economic arenas particularly employed to make investment decisions. The decisions are taken by analysing the resulting benefits and costs incurred because  of a decision or an investment. It is one of the most practical and system analysis considering that it analyses the relative soundness and weakness (expressed in monetary terms) of different options in order to arrive at the best option that gives maximum benefits with least cost.

2) Economic impact analysis: As the name suggests, this analysis assesses the impact or effect of a particular economic action/ policy undertaken on the economy. Generally, the economic impact analysis is carried out on discerning the effect of economic step on a particular target area. The methods used in this type of analysis include Input output models and economic simulation models.

3) Cost effectiveness analysis: it is a type of economic analysis that involves analysing the effectiveness and corresponding costs of an economic action. It is similar to cost-utility analysis and different from cost benefit analysis because it does not assign a monetary value to strength of effectiveness rather it is obtained as a ratio. It is generally undertaken in health sector.

4) Hedonic pricing: It is an interesting pricing method that uses the marketable value of proxy product or good in order to know and discern the monetary value of non marketable commodity. Needless to say, it is important method used in knowing the value of environment through prices of marketable goods. It can be said that it traces the value and the benefit of underrepresented commodity such as environment through price mechanism.

5) Shadow pricing: Generally employed in cost benefit analysis, shadow pricing is used to know the intrinsic value of goods which have no market mechanism to calculate their value. Most of the activities that may affect and utilise environmental goods are generally advised to employ shadow pricing.