Chapter 4: Problems 1,2 and 3

Chapter 4: Problems 1,2 and 3 - RishiSanghvi...

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Rishi Sanghvi  Cost Benefit Analysis  Econ 4210-01 HW 2 Due: 02/26/2010 Question 1:  1 | P a g e
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Employees = -(A+B) Workers = +A Unemployed = -(C+D) +L Social Opportunity Cost  = – C – D – B + L =  -$8,000 Question 2  (a) Net Social Benefit  = ∆CS + Government Revenue = -(A+B) +A = -B = - 0.5 X 0.1 X 10,000 =    $500 (b)  2 | P a g e
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B + E +G +F =  $24,750  as opposed to the government’s savings of $25,000.  .  Hence, the government’s savings cannot be appropriately used as a measure of the social value of  the cost savings that results from the government purchasing less concrete. Shadow pricing is  necessary to reflect a market price that takes into consideration the $24,750.  There is a small discrepancy between the $25,000 the government saves and the calculated  benefit of $24,750. Price of concrete was changed thus shadow pricing is needed. 
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Chapter 4: Problems 1,2 and 3 - RishiSanghvi...

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