The Government Is Deciding Whether to Build a New $2

question 88

Multiple Choice

The government is deciding whether to build a new $2 billion highway from one side of the city to the other.Some business and consumer groups are questioning the value that such an expensive highway will bring to the city.The government says that it has done a cost-benefit analysis which shows that the highway will bring a slightly positive return, and therefore the highway should be built.Which of the following statements is true?

• A)Cost-benefit analyses always provide an accurate valuation of a project, so the highway should be built.
• B)Cost-benefit analyses do not always reflect people's true valuation of a project, so the highway should not be built.
• C)It is not possible to put a dollar value on a highway, so the highway should be built.
• D)Cost-benefit analyses are rough approximations at best, so the highway should only be built if very strong evidence in favour is provided.

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Definitions:

Federal Trade Commission

A federal agency established to protect consumers and promote competition by preventing anticompetitive, deceptive, and unfair business practices.

Price-Fixing

An illegal agreement among competitors to set prices at a certain level, rather than letting them be determined naturally by supply and demand.

Economic Efficiency

A state in which resources are allocated in a way that maximizes the production of goods and services at the lowest cost, while achieving the highest possible welfare or utility.

Negative Externalities

Costs experienced by third parties due to the actions of others that are not reflected in market prices.