What Is Difficult About Using Cost-Benefit Analysis to Estimate the Level

question 8

Multiple Choice

What is difficult about using cost-benefit analysis to estimate the level of a public good that will maximize social welfare?

• A)The government cannot use cost-benefit analysis to estimate this.
• B)It is difficult to estimate the marginal costs of supplying a public good.
• C)It is difficult to estimate the marginal social benefits of supplying a public good.
• D)The costs of using it may make the provision of the public good prohibitive.

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Definitions:

Substitution Effect

The change in demand for a good or service that occurs when its price increases or decreases, leading consumers to substitute it with other goods or services that are relatively more or less expensive.

Output Effect

The impact on the total production of goods and services in an economy resulting from changes in demand, supply, technology, or factors of production.

Factors of Production

The basic inputs used to produce goods and services, including land, labor, capital, and entrepreneurship.

Complementary Resource

A good or service that is used together with another good or service to provide a benefit or function.