Assume That Abby, Ben, and Clara Are the Only Citizens

question 116

Multiple Choice

Assume that Abby, Ben, and Clara are the only citizens in a community. A proposed public good has a total cost of $1,000. All three citizens will share an equal portion of this cost in taxes. The benefit of the public good
Is $400 each to Abby, Ben, and Clara. Based on economic analysis, the public good should

• A) be produced, because the benefits are greater than the costs.
• B) not be produced, because the costs are greater than the benefits.
• C) be put to a vote and produced only if voters approve it.
• D) not be produced, even if voters vote in favor of it.

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Definitions:

Mutually Exclusive Projects

Investment initiatives where committing to one option precludes the selection of an alternative.

Analytical Method

A systematic approach in research and investigation to solve problems or interpret data.

Discounted Payback

A capital budgeting method that calculates the time required to recoup the cost of an investment, considering the time value of money.

Discount Rate

This interest rate is employed within the scope of DCF to ascertain the present valuation of future cash streams.