How Does Decision Making Under Profit-Maximization Compare with Benefit-Cost Analysis

question 34

Multiple Choice

How does decision making under profit-maximization compare with benefit-cost analysis?

• A) Benefit-cost analysis is more comprehensive than profit-maximization since it includes the value of consumer surplus.
• B) Even in the presence of externalities, profit-maximization leads to efficient outcomes, while benefit-cost analysis does not.
• C) Profit maximization internalizes the cost of externalities unlike benefit-cost analysis.
• D) A public program should be implemented on the basis of profit-maximization principles and not benefit-cost analysis.
• E) Under profit-maximization, the benefits and costs from a program are usually overstated.

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Definitions:

Lowering Tax Rates

The act of reducing the percentage at which income or corporate profits are taxed, which can affect economic behaviors and government revenues.

Supply-siders

Economists who believe reducing barriers for people to produce (supply) goods and services, like lower taxes, will stimulate economic growth.

Curing Recessions

Efforts and policies aimed at stimulating economic recovery and ending periods of economic decline.

Keynesian Economics

As formulated by John Maynard Keynes, this school believed the private economy was inherently unstable and that government intervention was necessary to prevent recessions from becoming depressions.