PS 04 - Economics 335Cornell University Wissink PROBLEM SET 4 1 Answer True False or Uncertain Explain a When the government calculates the

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Economics 335Cornell University. Wissink - PROBLEM SET 4 1. Answer True, False, or Uncertain. Explain. a) When the government calculates the benefits from a flood control project they should include the extra profits received by the tackle shop owner who provides bait for fishing on the new lake. b) The higher the interest rate used to discount future benefits, the more valuable the benefits appear today. c) After benefit-cost analysis has been applied, projects with the higher benefit/cost ratios will always yield the higher net present discounted values. d) If benefit-cost analysis is performed correctly, then the adoption of any project that is evaluated to have a positive net present discounted value will necessarily constitute an actual Pareto improvement with respect to the status quo. e) After benefit-cost analysis has been applied, projects with the higher internal rate of return will always yield the higher net present discounted values. f) Producers bear the entire cost of cleaner air because the government forces them to produce cars with costly emission control devices. 2. Suppose that the Department of Transportation has a budget of $5 billion to spend on roads, and that the benefits and costs from all roads under consideration are as listed in the table: Which road(s) should be built and why? If you were an advisor to the Department of Transportation, what kinds of
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This note was uploaded on 05/06/2008 for the course ECON 3350 taught by Professor Wissink during the Spring '08 term at Cornell University (Engineering School).

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PS 04 - Economics 335Cornell University Wissink PROBLEM SET 4 1 Answer True False or Uncertain Explain a When the government calculates the

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