All Flashcards
What is Cost-Benefit Analysis?
A method to evaluate if a project or policy's benefits outweigh its costs.
Define Explicit Costs.
Direct, out-of-pocket monetary costs.
Define Implicit Costs.
Indirect costs, also known as opportunity costs. The value of the next best alternative you give up.
What is Total Benefit?
The overall benefit from consuming a certain quantity of goods or services.
What is Total Cost?
The overall cost from consuming a certain quantity of goods or services.
Define Marginal Benefit.
The additional benefit from consuming one more unit of a good or service.
Define Marginal Cost.
The additional cost from consuming one more unit of a good or service.
What are Utils?
Imaginary units of utility or satisfaction used to quantify how much we like something.
Define Diminishing Marginal Utility.
As you consume more of a good, the additional satisfaction you get from each additional unit decreases.
What is Marginal Surplus?
The difference between marginal benefit (MB) and marginal cost (MC).
How does a subsidy affect the marginal cost of a good?
A subsidy decreases the marginal cost, encouraging more consumption.
How does a tax affect the marginal cost of a good?
A tax increases the marginal cost, discouraging consumption.
How can cost-benefit analysis be used to evaluate environmental regulations?
It weighs the costs of implementing the regulations against the benefits of reduced pollution and improved health.
How might a price ceiling affect consumer surplus?
A price ceiling may increase consumer surplus for some consumers but decrease it overall due to shortages.
How might a price floor affect producer surplus?
A price floor may increase producer surplus for some producers but decrease it overall due to surpluses.
What are potential drawbacks of using cost-benefit analysis for public projects?
Difficulty in accurately quantifying all costs and benefits, especially intangible ones.
How does cost-benefit analysis help in deciding whether to implement a public health program?
It helps in comparing the costs of the program (e.g., vaccinations) with the benefits (e.g., reduced disease incidence).
How does a minimum wage policy affect the marginal cost of labor for firms?
It increases the marginal cost of labor.
What is the impact of rent control on the availability of housing?
Rent control can lead to a shortage of available housing.
What are the potential unintended consequences of a policy designed to promote renewable energy?
Increased energy costs for consumers, dependence on subsidies, and environmental impacts from resource extraction.
How does the concept of opportunity cost apply when deciding whether to attend college?
It includes tuition, fees, books, and forgone wages from not working full-time.
How does diminishing marginal utility explain why you eventually stop eating pizza?
Each slice provides less satisfaction than the previous one, until the additional satisfaction is not worth the cost.
Explain how marginal analysis helps a business decide how much to produce.
A business should produce as long as the marginal benefit (revenue) exceeds the marginal cost.
How does cost-benefit analysis apply to government decisions about building a new highway?
The government must weigh the costs of construction against the benefits of reduced travel time and increased commerce.
How does opportunity cost affect the decision to start a business?
It includes the salary you could be earning at another job and the return you could get from investing your capital elsewhere.
If MB > MC, what should a consumer do?
Consume more of the good or service.
If MB < MC, what should a consumer do?
Consume less of the good or service.
If MB = MC, what should a consumer do?
Maintain the current level of consumption, as total benefit is maximized.
Explain how implicit costs impact a business's profit differently than explicit costs.
Implicit costs are not recorded in accounting statements, but they are crucial for economic decision-making when considering profitability.
How does understanding marginal analysis help in personal budgeting decisions?
It helps in deciding whether the additional satisfaction from buying one more item is worth the additional cost.