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8 Cards in this Set

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What are the 5 steps in the benefit cost process?

1. Identify list of alternatives


2. Identify private and social costs of each alternatives


3. Value the costs and benefits


4. Calculate the net present value (or benefits cost ratio) to society of each alternative


5. Rank the alternatives in order of preference

What are the advantages of a Cost-Benefit Analysis?

Externalities: consideration of impacts on groups in society


Time: discounting takes into account that future money has less value


Ranking: CBA allows us to rank projects according to NPV or BCR

What are the disadvantages of a CBA?

-Some externalities cannot be given a monetary value (eg. pollution)


- There is a risk some groups may still be excluded from the benefits and costs of a project


- Equity: some groups may reap the benefits but others pay the costs


- Reconciling social and individual welfare: what we want individually and also in society


- Valuing the environment


- Valuing human life and safety

What are possible benefits?

- Less stress


- Time saving


- Sales revenue


- Employment


- Economics development/growth


- Work experience


- Training benefits


- Increased infrastructure


- Increase in house prices


- Stimulates local service providers


- Use of new facilities by locals

What are possible costs?

- Air, water, noise pollution


- Loss of parkland


- Social impacts on a group of people


- Aesthetics


- Human life/ safety


- Personal happiness


- Capital expenditure


- Operating costs


- Maintenance costs


- Development costs


- Labour costs


- Opportunity costs


- Loss of wilderness areas


- Contamination of water


- Traffic congestion

What is the Reserve Banks current inflation rate?

1.5% and therefore this should be used as a discount rate

How is the Benefits Cost Ratio calculated?

B/c ratio = Presentvalue of benefits/ present value of costs

How is the Net Present Value calculated?

NPV= Present value of benefits - present value of costs