Consumer and producer surveys sometimes fail to give accurate information about

Consumer and producer surveys sometimes fail to give

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Consumer and producer surveys sometimes fail to give accurate information about project costs and benefits because many people have difficulty verbalizing the reasoning behind their tangible market transactions. For example, buyers may flock to buy bargain-priced airfares when the price charged falls below $39 each way on a heavily trafficked corridors like Kansas City to Chicago, but be unable to verbalize the price point at which they would be unwilling to make spur of the moment vacation trips, like visits to Wrigley Field to see the Cubs play. Similarly, suppose a given public project would reduce freeway congestion in Chicago for commuters traveling from the suburbs to the Loop. The valuation of benefits and costs should reflect preferences revealed by actual market choices. The value of saved transit time should not be merely what transportation planners think time should be worth or even what commuters say their time is worth. The value of saved transit time should be that which the public reveals through choices involving tradeoffs between time and money in decisions to use public transit versus private automobiles, prices for in- close versus remote parking, and so on. One of the most challenging aspects of cost- benefit analysis is finding market choices that effectively reveal consumer and producer tradeoffs and preferences. Q20.8 To measure public project desirability, positive and negative aspects of the project must be expressed in terms of a common monetary unit. Explain the importance of the present value concept in benefit/cost ratio calculations using a 5 percent interest rate assumption and a 5-year project life.
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