Exam 2 CBA

Exam 2 CBA - 1Methods of Cost-Benefit Analysis, Professor...

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1Methods of Cost-Benefit Analysis, Professor Russell Answers to the QUIZ, November 1, 2011 1. (25 points) Explain the Kaldor-Hicks criterion for deciding whether to undertake a project/policy and the potential compensation test. The Kaldor-Hicks criterion is the net benefit criterion: the benefits of a project/policy must exceed its costs if it is to be worth considering. Because net benefits are positive the potential exists to compensate the losers – those who bear the costs of the project/policy – so that they are as well off as before, and the winners are still better off, but the Kaldor-Hicks criterion does not require that the losers be compensated. 2. (25 points) Explain consumer surplus, producer surplus, and social surplus in words without using the terms demand or supply. How do these concepts relate to market demand and supply curves? Draw and label a graph that illustrates them. Consumer surplus is the difference between consumers’ maximum willingness
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Exam 2 CBA - 1Methods of Cost-Benefit Analysis, Professor...

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