Instructor's Manual IMChap008

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1、Part2–PublicExpenditure:PublicGoodsandExternalitiesChapter8–Cost-BenefitAnalysisBriefOutline1.PresentValuea.ProjectingPresentDollarsintotheFutureb.ProjectingFutureDollarsintothePresentc.Inflation2.PrivateSectorProjectEvaluationa.InternalRateofReturnb.Benefit-CostRatio3.DiscountRate

2、forGovernmentProjectsa.RatesBasedonReturnsinthePrivateSectorb.SocialDiscountRatec.DiscountingandtheEconomicsofClimateChanged.GovernmentDiscountinginPractice4.ValuingPublicBenefitsandCostsa.MarketPricesb.AdjustedMarketPricesc.ConsumerSurplusd.InferencesfromEconomicBehaviore.ValuingI

3、ntangibles5.GamesCost-BenefitAnalystsPlaya.TheChain-ReactionGameb.TheLaborGamec.TheDouble-CountingGame6.DistributionalConsiderations7.Uncertainty8.AnApplication:AreReductionsinClassSizeWorthIt?a.DiscountRateb.Costsc.Benefitsd.TheBottomLineandEvaluation9.Use(andNonuse)byGovernmentAn

4、swerstoEnd-of-ChapterQuestions1.Yes,onereallymustaskthesequestions,althoughitmayseemdistasteful.Otherwise,thereisnowaytodeterminewhichsafetyprecautionsaresensible.2.Thedecreasedtimespentattheinspectionmustbecountedasabenefitoftheprogram.Onereasonablewaytoestimatethevalueofthetimewo

5、uldbetousetheaveragewagerateinthestate,andmultiplythisbythedecreasedwaitingtimeof54minutes.3.Thepresentvalueof$25/.10=$250.Thepresentvalueoftheperpetualannualbenefit=B+B/(1+r)+B/(1+r)2+…=B(r+1-r)/r=B/r.8-3Copyright©2014McGraw-HillEducation.Allrightsreserved.Noreproductionordistribu

6、tionwithoutthepriorwrittenconsentofMcGraw-HillEducation.Part2–PublicExpenditure:PublicGoodsandExternalities1.a.Theinternalrateofreturnisthediscountratethatwouldmaketheproject’snetpresentvalue(NPV)equalzero.Tosolvefortheinternalrateofreturn,r,setthepresentvalueofbenefitsminusthepres

7、entvalueofcostsequaltozero.Ifweassumethebenefitofusingthebicycleisimmediate(andworth$170),thereisalsothebenefitofre-sellingthebicyclefor$350,butitcan’tbere-solduntilnextyear,somustbediscounted.Therefore,NPVis170+[350/(1+r)]–500=0.Solvingthisexpressionforryieldsr=6percent.Ifweassume

8、thatthebenefitsofthevacati