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cost benefit analysis The comparison of the costs and benifts of public goods projects to decide if they should be undertaken
Vocab from this section Cash flow accounting Accounting method that calculates costs solely by adding up what the government pays for inputs to a project, and calculates benefits solely by adding up income or government revenue generated by the project. Opportunity cost: The social marginal cost of any resource is the value of that resource in its next best use. Rent Payments to resource delivers that exceed those necessary to employ the resource.
should use a tax rate of 7%. Vocab in this section... present discounted value (PDV) A dollar next year is worth 1 + r times less than a dollar now because the dollar could have earned r% interest if invested. The rate appropriate value of r to use in computing PDV for social benefit.
Remember that in competitive models individuals set the value of their next hoer of leisure time equal to their wage. If the marginal utility if leisure time is above the wage, people will worked less and take more leisure. So, the value of market time is always wage. There are limitations however, because a person cannot set there hours and therefore the wage overstates the value of leisure time.