Suppose You Attend a Town Meeting at Which Some Experts

question 29

Multiple Choice

Suppose you attend a town meeting at which some experts tell the audience that they have performed a cost-benefit analysis of a proposed transit system that would probably reduce overall air pollution and fossil fuel consumption. The analysis, however, reveals that ticket prices will not cover the cost of operating the system when fuel, wages, and equipment are taken into account. As a biologist, you know that if ecosystem services had been included in the analysis the experts might have arrived at a different answer. Why are ecosystem services rarely included in economic analyses?

• A) Their cost is difficult to estimate and people take them for granted.
• B) They are not worth much and are usually not considered.
• C) There are no laws that require investigation of ecosystem services in environmental planning.
• D) There are too many variables to ecosystem services, making their calculation impossible.
• E) Ecosystem services only take into account abiotic factors that affect local environments.

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Definitions:

Implicit Costs

The opportunity costs that are not directly paid for in cash but represent the loss of alternative benefits when resources are used for a particular purpose.

Explicit Costs

Direct, out-of-pocket payments for goods and services that are used in the production of other goods or services.

Accounting Profit

The financial profit of a business calculated by subtracting total expenses from total revenue, as shown in the company's income statement.

Economic Profit

A measure of profitability calculated by subtracting both explicit and implicit costs from total revenues, reflecting the true economic performance of a business.