Public finance: cost benefit analysis

A government’s opportunity cost is the measure of a resource social margin costs incurred when they forgo an alternative. The opportunity cost of a government varies depending on the nature of the market. Government purchases occur when the government buys goods and services on behalf of the public. The opportunity costs of the government relate to its purchases of the public good and service. General government spending incurs opportunity costs that are equal to the input costs of producing the resource or service.

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In a perfect competitive market, there are many firms. In this case, the marginal resource costs will equal the price of the good in the market. In the event the government purchases from a monopolistic market, there will be a shift In the demand curve to the right. The surplus on monopolistic produces Increases because they will sell their goods at a high price. These high rates Imply that there the social marginal cost will be less than the prices In a monopolistic market. In cost benefit analysis, the opportunity cost will be equal to the marginal costs.

The increase in prices is a transfer to the monopolistic firm and not a cost nor a benefit. Question Three Councilor Squeaky is correct because he suggest that there are no efficiency costs while raising the revenue. This agreement is because the real social cost of the project relies on the marginal cost of production of the inputs. If the input prices are high, then the costs of the project will also be high. The added costs that the suppliers use in pricing are a transfer and not a cost or a benefit. Therefore, It Is important to consider the prices that the suppliers set for the data of the project.

This consideration Implies that the costs of Inputs are relevant In the assessment of the availably of the project. The councilor Males’ argument will only be right If there are efficiency costs associated with tax collection. Question Five The concept value of time is critical in the measure of costs. This concept requires that time be classified as a benefit when saved. Time is a scarce commodity, and this makes it a valuable input. A case scenario of two drivers who cover the same mileage but one driver A tank is bigger than the other driver B can explain the value of time.

Driver B will require feeding his tank on several occasions before completion of the journey. The time lost in a petrol station while waiting for a car fuel is an additional cost to the price of purchasing the fuel. In comparison to the driver A, the fueling of driver B will be twice as much. This case Implies that driver B will have high time costs compared to driver A. This fact shows that the driver A Is likely to patronize a chevron station because his prices are low. Question Seven The amount of time depends on how an Individual chooses to spend their time.

In his case, a person prefers to work for forty hours a week compared to twenty times. Hours are not included. This choice indicates that the time option does not show the value of time. The total hourly wage rate will be high when one works for forty hours, but the amount of time is not accurate. Eight additional hours of your preferred time are used in working. These additional eight hours make the wage rate not to be equal to the value of your time. Question Ten (a) City of Greenville: New swimming pool project plan Capacity expected = 800 swimmers Admission fee = $ 6

Estimated costs over the life of the pool per swimmer = $ 4 The table shows the results from a pool in a neighboring city Swimming pool price per day Number of swimmers for the day Swimming pool price per day Number of swimmers for day $8 $10 200 $4 1,100 $6 $2 1 ,400 The net profit of the city in a single day based on the estimated costs is will be $2 ($6- $4) for every swimmer in a single day. The target swimmers are eight hundred making the total profit to be $1600 per day. The demand curve can give the consumer surplus expected. Demand is a function of quantity and price holding other factors constant.