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103. Suppose that the Town of Mapledale is considering hiring an additional firefighter. The expected benefit is estimated
to be worth $5 for each of Mapledale’s 15,000 residents. What should the city do?
a.
Hire the firefighter because additional fire protection is priceless.
b.
Hire the firefighter if the cost of the new firefighter is less than $75,000.
c.
Do not hire the firefighter because the costs exceed the benefits.
d.
Hire the firefighter only if the benefit to the residents exceeds $75,000.
104. Suppose that a small county is considering adding a guard rail to a dangerous curve by a river. The guard rail will
cost $70,000. The average damage done to vehicles that slide off the road at the curve is $10,000. It is expected that the
guard rail will prevent 5 vehicles from sliding off the road during its usable life. What should the county do?
a.
Install the guard rail because safety is priceless.
b.
Install the guard rail because the benefits exceed the costs.
c.
Do not install the guard rail because the costs exceed the benefits.
d.
Do not install the guard rail at any cost because drivers can purchase private insurance for their vehicles.
105. Economists think that the best way to determine the value of a human life is to
a.
evaluate the value of a person’s expected earnings in the labor market.
b.
evaluate the risks people are willing to take and what they would have to be paid to take them.
c.
determine a person’s accumulated wealth at the time of death.
d.
do nothing; human life is priceless.
106. A cost-benefit analysis of a highway is difficult to conduct because analysts
a.
cannot estimate the explicit cost of a project that has not been completed.
b.
are unlikely to have access to costs on similar projects.
c.
are not able to consider the opportunity cost of resources.
d.
will have difficulty estimating the value of the highway.
107. Cost-benefit analysts often encounter the problem that those who would benefit from government provision of a
public good tend to
a.
overstate the benefit they would receive from the public good and those who would be harmed by government
provision of a public good tend to overstate the costs they would incur from the public good.
b.
overstate the benefit they would receive from the public good and those who would be harmed by government
provision of a public good tend to understate the costs they would incur from the public good.
c.
understate the benefit they would receive from the public good and those who would be harmed by
government provision of a public good tend to overstate the costs they would incur from the public good.
d.
understate the benefit they would receive from the public good and those who would be harmed by
government provision of a public good tend to understate the costs they would incur from the public good.
108. Simply asking people how much they value a highway is not a reliable way of measuring the benefits and costs
because
a.
those who stand to gain have an incentive to tell the truth.
b.
those who stand to lose have an incentive to exaggerate their true costs.
c.
answers to the survey questions will always be downwardly biased.
d.
not everyone asked will be using the highway.
109. The greatest difficulty with cost-benefit analysis of a public project is determining
a.
whether government revenue is sufficient to cover the cost of the project.
b.
which contractor should be awarded the project.
c.
the cost of the project.
d.
the value or benefit of the project.
110. Each of the following explains why cost-benefit analysis is difficult except
a.
there is no price with which to judge the value of a public good.
b.
surveys are often biased and unreliable.
c.
it is difficult to identify all factors that influence costs and benefits of public goods.
d.
government projects rarely have sufficient funding to complete them on time.
111. Suppose that policymakers are doing cost-benefit analysis on a proposal to add traffic barriers to divide the flow of
traffic in an effort to increase safety on a given highway. Which of the following statements is correct?
a.
The benefits are usually easier to measure than the costs.
b.
Because human life is priceless, any measure to increase traffic safety would generate benefits that outweigh
the costs.
c.
Estimating the value of a human life is difficult but necessary to evaluate the proposal.
d.
Both a and b are correct.
112. In a cost-benefit analysis, the value of a human life is sometimes calculated on the basis of
a.
the risks that a person voluntarily exposes herself to in her job and/or recreational choices.
b.
the value of each individual's assets.
c.
the belief that human life is priceless.
d.
the amount of resources required to adequately sustain life.
113. Cost-benefit analysis is important to determine the role of government in our economy because
a.
the government should provide all goods for which the benefits exceed the costs.
b.
cost-benefit analysis identifies the possible gains to society from government provision of a particular good.
c.
markets for private goods cannot effectively assign costs and benefits.
d.
cost-benefit analysis is the best tool to identify market failures.
114. Before considering any public project, the government should
(i)
compare the total cost and total benefits of the project.
(ii)
conduct a cost-benefit analysis.
(iii)
infer that citizens who vote for a project are willing to pay equally for it.
a.
(i) only
b.
(ii) only
c.
(i) and (ii) only
d.
(i), (ii), and (iii)
115. Highway engineers want to improve a dangerous stretch of highway. They expect that it will reduce the risk of
someone dying in an accident from 5.3 percent to 2.1 percent over the life of the highway. If a human life is worth $10
million, then the project is worth doing as long as it does not cost more than
a.
$53,000.
b.
$210,000.
c.
$320,000.
d.
$2.1 million.
116. After a recent spike in violent crime, the local police department wants to spend $550,000 on a new crime fighting
initiative. If a human life is worth $9 million, the crime fighting initiative is worth the cost if it reduces the risk of
someone dying from crime by at least
a.
3.5 percentage points.
b.
5.5 percentage points.
c.
6.1 percentage points.
d.
9.0 percentage points.
117. To increase safety at a bad intersection, the mayor must decide whether to install a traffic light at a cost of $45,000. If
the traffic light reduces the risk of fatality by 0.4 percent, and the value of a human life is estimated to be $10 million, the
mayor should
a.
install the light because the expected benefit of $400,000 is greater than the cost.
b.
install the light because the expected benefit of $45,000 is greater than the cost.
c.
not install the light because the expected benefit of $45,000 is only equal to the cost.
d.
not install the light because the expected benefit of $40,000 is less than the cost.
118. A town engineer comes to the city council with a proposal to install a traffic light at a certain intersection that
currently has a stop sign. The benefit of the traffic light is increased safety because the light will reduce the incidence of
fatal traffic accidents by 50 percent per year. Which of the following statements is correct?
a.
The city council should vote to install the traffic light because the benefits will outweigh the costs.
b.
The city council should carefully evaluate the benefits of reduced fatalities against only the explicit costs of
the light.
c.
The city council should carefully evaluate the benefits of reduced fatalities against the costs of the light and of
the extra time that drivers will spend waiting for a green light.
d.
The costs will invariably outweigh the benefits.
119. Suppose that installing an overhead pedestrian walkway would cost a college town $150,000. The walkway is
expected to reduce the risk of fatality by 3 percent, and the cost of a human life is estimated at $10 million. The town
should
a.
install the walkway because the estimated benefit is twice the cost.
b.
install the walkway because the estimated benefit equals the cost.
c.
not install the walkway, since the cost is twice the estimated benefit.
d.
install the walkway, since the cost of even a single life is too great not to take action.
120. Suppose that the cost of installing an overhead pedestrian walkway in a college town is $150,000. The walkway is
expected to reduce the risk of fatality by 1.5 percent, and the cost of a human life is estimated at $10 million. The town
should
a.
install the walkway because the estimated benefit is twice the cost.
b.
be indifferent between installing and not installing the walkway because the estimated benefit equals the cost.
c.
not install the walkway, since the cost is twice the estimated benefit.
d.
install the walkway, since the cost of even a single life is too great not to take action.
121. When an infinite value is placed on human life, policymakers who rely on cost-benefit analysis
a.
are forced to pursue any project in which a single human life is saved.
b.
are likely to make decisions that optimally allocate society's scarce resources.
c.
would not pursue any public project that would not save human life.
d.
would be forced to rely on private markets to provide public goods.
122. Suppose that you want to build a community garden for your neighborhood, which has 500 residents. The cost of the
garden is $2,000, and each person values the garden at $3. After a month, you have only received 75 donations at $3 each.
The result is that
a.
the local government should build the garden, but you should not.
b.
you should still build the garden, but the local government should not.
c.
neither you nor the local government should build the garden.
d.
either you or the local government should build the garden.
123. When the value of a human life is calculated according to the economic contribution a person makes to society (as
reflected in her income-earning potential), the troubling implication is that
a.
it is possible for a retired or disabled person to have no value to society.
b.
economists are more valuable than entrepreneurs.
c.
retired people who volunteer in their communities are more valuable than physicians.
d.
all workers have equal value.
124. Suppose a human life is worth $10 million. Installing a better lighting system in the city park would reduce the risk
of someone being murdered there from 3.5 to 2.9 percent over the life of the system. The city should install the new
lighting system if its cost does not exceed
a.
$60,000.
b.
$290,000.
c.
$350,000.
d.
$600,000.
125. The Occupational Safety and Health Administration (OSHA) has determined that the probability of a worker dying
from exposure to a hazardous chemical used in the production of fertilizer is 0.008. The cost of imposing a regulation that
would ban the chemical is $32 million. If the value of a human life is equal to $10 million, how many people must the
policy affect in order for the benefits to exceed the costs?
a.
256
b.
401
c.
3201
d.
4001
126. The Occupational Safety and Health Administration (OSHA) has determined that 100 workers are exposed to a
hazardous chemical used in the production of diet soft drinks. The cost of imposing a regulation that would ban the
chemical is $10 million. OSHA has calculated that each person saved by this regulation has a value equal to $10 million.
If the benefits are exactly equal to the costs, what probability is OSHA using to assess the likelihood of a fatality from
exposure to this chemical?
a.
0.001
b.
0.01
c.
0.1
d.
1.0
127. In a certain city, the government is considering acquiring some land and turning it into a park (without any fences or
gates). In an attempt to determine the extent to which residents of the city would value the park, residents are asked to fill
out a questionnaire. Which of the following is correct?
a.
On the questionnaire, some residents are likely to exaggerate the value they associate with the park.
b.
On the questionnaire, some residents are likely to exaggerate the costs they associate with the park.
c.
The use of such a questionnaire in cost-benefit analysis is likely to produce only rough approximations of
residents’ perceptions of the costs and benefits of a park.
d.
All of the above are correct.
Table 11-6
Consider the city of Widgetapolis with only four residents, John, James, Mary, and Lydia. The four residents are trying to
determine how many hours to spend in cleaning up the public lake. The table below shows each resident’s willingness to
pay for each hour of cleaning.
Hours
John
James
Mary
Lydia
1
$30
$50
$40
$10
2
25
40
37
9
3
20
30
34
8
4
15
20
30
7
5
9
10
25
6
6
3
0
15
5
7
0
0
5
4
128. Refer to Table 11-6. Suppose the cost to clean the lake is $20 per hour. How many hours should be spent cleaning
the lake to maximize total surplus for the residents in Widgetapolis?
a.
4 hours
b.
5 hours
c.
6 hours
d.
7 hours
129. Refer to Table 11-6. Suppose the cost to clean the lake is $100 per hour. How many hours should be spent cleaning
the lake to maximize total surplus for the residents in Widgetapolis?
a.
2 hours
b.
3 hours
c.
4 hours
d.
5 hours
130. Refer to Table 11-6. Suppose the cost of cleaning the lake is $40 per hour, and that the residents have agreed to split
the cost of cleaning the lake equally. If the residents vote to determine the number of hours spent cleaning the lake, basing
their decision solely on what maximizes their own surplus, what is the most number of hours for which all four residents
would vote “yes?”
a.
0 hours
b.
1 hour
c.
2 hours
d.
3 hours
131. Refer to Table 11-6. Suppose the cost of cleaning the lake is $20 per hour, and that the residents have agreed to split
the cost of cleaning the lake equally. If the residents vote to determine the number of hours spent cleaning the lake, basing
their decision solely on what maximizes their own surplus, what is the most number of hours for which all four residents
would vote “yes?”
a.
3 hours
b.
4 hours
c.
5 hours
d.
6 hours
132. Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the
cost of cleaning the lake equally. To maximize his own surplus, how many hours of cleaning would John like to have
completed?
a.
2 hours
b.
3 hours
c.
4 hours
d.
5 hours
133. Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the
cost of cleaning the lake equally. If it was decided that the lake will be cleaned for the number of hours that maximizes
total surplus of Widgetapolis, how much individual surplus will James receive in total?
a.
-$20
b.
-$10
c.
$0
d.
$100
134. Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the
cost of cleaning the lake equally. If it was decided that the lake will be cleaned for the number of hours that maximizes
total surplus of Widgetapolis, how much individual surplus will Lydia receive in total?
a.
-$10
b.
-$5
c.
-$4
d.
$6
135. Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the
cost of cleaning the lake equally. If it was decided that the lake will be cleaned for the number of hours that maximizes
total surplus of Widgetapolis, how much individual surplus will Mary receive in total?
a.
-$10
b.
$15
c.
$25
d.
$116
136. Refer to Table 11-6. Suppose the cost to clean the lake is $40 per hour and that the residents have agreed to split the
cost of cleaning the lake equally. If it was decided that the lake will be cleaned for the number of hours that maximizes
total surplus of Widgetapolis, how much individual surplus will John receive in total?
a.
-$1
b.
$9
c.
$49
d.
$99
