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Chapter: 13 -Problem: 5 >> If E is a public good, then we would interpret pe as the tax per unit of E that the person pays. As everyone would have to consume the same quantity, the person would not be able to choose the value of E so that the optimization of utility would be over only X and Z.
Answer Preview: If E is a public good, then it is consumed jointly by all members of …

, Chapter: 3 -Problem: 4 >> Depending on the slopes of the indifference curves, the consumption of good Y could either increase or decrease. As shown in Figure 3A.1(a), it slightly decreases in this particular example.Figure 3A.1(a) Transcribed Image Text: G 0 Price Po Pa 0 0 a Uo K U? H X Hicksian compensated variation demand
Answer Preview: In this figure, the slope of the indifference curve represents the consumer's marginal rate of substitution, or the amount of good Y that the consume…

, Chapter: 3 -Problem: 8 >> Specifically, using compensating variation is only theoretically correct if consumers have homothetic preferences (i.e., the slopes of all indifferent curves are constant along any ray from the origin), which implies that each good in a consumer’s utility function has an income elasticity of one. Equivalent variation does not require a similarly restrictive assumption. See George W. McKenzie, Meas
Answer Preview: ANS WER Comp ens ating variation is a measure of welfare change that is most appropriate when the pr…

, Chapter: 13 -Problem: 4 >> John P. Hoehn and Alan Randall, “Too Many Proposals Pass the Benefit Cost Test.” American Economic Review, 79(3), 1989, 544–51.
Answer Preview: In the article "Too Many Proposals Pass the Benefit Cost Test," Hoehn and Randall argue that the traditional benefit-cost analysis (BCA) approach used to evaluate the economic feasibility of public po…

, Chapter: 9 -Problem: 1 >> Assuming all benefits arise at the end of each year. Transcribed Image Text: pv (B)= ?. (1+1) B(1+g) ?’ -? Setting i = (i - g)/(1 + g) = implies 1/(1 + i) = (1 + g)/(1 + i). Therefore, B? 1+g di=1(1+g){1+i " PV (B) = ? t=1 1 B? *(1+g) (1+i) B? ? (1+g)
Answer Preview: We can use the formula for the present value of an annuity: PV = A * [(1 - (1 + r)^(-n…

, Chapter: 3 -Problem: 5 >> In calculus notation, this decomposition can be represented as follows:This equation is known as the Slutsky equation. The first term to the right of the equal sign is the substitution effect, where utility is held constant. The second term is the income effect, where prices are held constant, and X is the amount of the good consumed prior to the price change.
Answer Preview: The Slutsky equation decomposes the total effect of a change in price on the consumption of a good into two separate effects: the substitution effect …

, Chapter: 13 -Problem: 2 >> Although we use compensating variation as a measure of the dollar value of utility here because we find it most intuitive (as discussed in the appendix to Chapter 3), equivalent variation, which measures welfare changes relative to the utility level after the price change, is generally considered a superior money metric for utility because it provides an unambiguous ordinal measure for ranking pri
Answer Preview: Compensating variation measures the dollar value of the change in utility that occurs as a result of a price change. It represents the amount of money …

, Chapter: 13 -Problem: 3 >> Of course, the value of TEV will depend on whether it is measured in terms of compensating variation or equivalent variation.
Answer Preview: Yes, that's correct. TEV, or Total Economic Value, is a concept used in economics to measure th…

, Chapter: 4 -Problem: 4 >> The OLS estimators are also efficient. Here, efficiency means that among all estimators whose formulas are linear in the dependent variable, the OLS estimator has the smallest variance. It therefore has the greatest “power” for rejecting the null hypothesis that a coefficient is zero.
Answer Preview: This is important because it means that the OLS estimator is able to provide the most precise and accurate estimates of the coefficients in the model. …

, Chapter: 4 -Problem: 1 >> For a clear introduction to regression analysis, see Jeffrey M. Wooldridge, Introductory Econometrics: A Modern Approach (Boston, MA: South-Western Publishing, 2000).
Answer Preview: Regression analysis is a statistical method used to model and analyze the relationships between variables. It is commonly used in economics to underst…

, Chapter: 3 -Problem: 6 >> One way of doing this first requires obtaining estimates of the relation between quantity purchased and prices and the relation between quantity purchased and income and then (as implied by the preceding note) using the Slutsky equation to derive the income-compensated (rather than the utility-compensated) relation between prices and quantity purchased. In practice, however, it is not always feasi
Answer Preview: In such cases, it is often necessary to rely on other methods to estimate the total value of a good or resource. One approach is to use revealed prefe…

, Chapter: 4 -Problem: 5 >> The central limit theorem tells us that the distribution of the sum of independent random variables approaches the normal distribution as the number in the sum becomes large, The theorem applies for almost any starting distributions with finite variances. If we think of the error term as the sum of all the many factors excluded from our model and, furthermore, we believe that these excluded factor
Answer Preview: Yes, that's correct! The central limit theorem states that the s…

, Chapter: 4 -Problem: 6 >> Student is the pseudonym of William Gosset, a quality control engineer at the Guinness Brewery in Dublin, who originally derived the t distribution.
Answer Preview: Yes, that's correct. William Gosset was a statistician …

, Chapter: 3 -Problem: 7 >> For analyses of the size of the bias, see Ian J. Irvine and William A. Sims, “Measuring Consumer Surplus with Unknown Hicksian Demands.” American Economic Review, 88(1), 1998, 314–22; Robin W. Boadway and Neil Bruce Welfare Economics (Oxford: Basil Blackwell, 1984), 216–19; Julian M. Alston and Douglas M. Larson, “Hicksian vs. Marshallian Welfare Measures: Why Do We Do What We Do?” American Journa
Answer Preview: The size of the bias in measuring consumer surplus (the difference between what a consumer is willing to pay for a good or service and the price they …

, Chapter: 13 -Problem: 7 >> If we assume that E is fixed at its initial level, the more realistic case in evaluating an existing wilderness area, then the existence value equals only $5.47. It is smaller than in the example because the person does not have the opportunity to purchase more E when X is not available. This assumption changes neither the TEV nor the existence value as estimated by the use-existence partition.
Answer Preview: Yes, that is correct. The existence value reflects the value that an individual pl…

, Chapter: 13 -Problem: 6 >> The partial derivatives of L with respect to E, X, Z, and ? give four equations with four unknowns. Although these first-order conditions cannot be solved analytically, they can be rearranged so that E, X, and Z are each expressed as a function of ? and parameters. A solution can be found by guessing values of ? until a value is found that implies values of E, X, and Z that satisfy the budget cons
Answer Preview: The partial derivatives of L with respect to E, X, Z, and represent the sensitivity of the function L to changes in each of these variables. The four equations with four unknowns that result from taki…

, Chapter: 4 -Problem: 7 >> The probability we choose puts an upward bound on the probability of falsely rejecting the null hypothesis. Falsely rejecting the null hypothesis is referred to as Type I error. Failing to reject the null hypothesis when in fact the alternative hypothesis is true is referred to as Type II error. We usually set the probability of Type I error at some low level, such as 5 percent. Holding the sample
Answer Preview: Yes, that's correct. When we perform a statistical test, we are trying to determine whether th…

, Chapter: 13 -Problem: 8 >> It may seem strange to partition in this way because one would normally think of existence as being a prerequisite for use. Some types of uses, however, could be provided without maintaining existence value. For example, through stocking it may be possible to provide game fishing without preserving a stream in its natural form.
Answer Preview: Additionally, the value of existence can be seen as independent from the value of use. For example, a natural habitat may have value simply for its ex…

, Chapter: 4 -Problem: 3 >> See Greene, Econometric Analysis. For an application that presents both OLS and ridge regression estimates, see A. E. Boardman, S. Miller, and A. P. Schinnar, “Efficient Employment of Cohorts of Labor in the U.S. Economy: An Illustration of a Method.” Socio-Economic Planning Sciences, 13(6), 1979, 297–302.
Answer Preview: Econometric Analysis by Greene is a widely respected textbook that provides a detailed treatment of econometric techniques, including ordinary least s…

, Chapter: 13 -Problem: 1 >> A more formal treatment can be found in Alan Randall, “Total and Nonuse Values,” in John B. Braden and Charles D. Kolstad (editors), Measuring the Demand for Environmental Quality (New York, NY: North-Holland, 1991), 303–21. The original analysis of the importance of the sequence of valuation can be found in J. R. Hicks, A Revision of Demand Theory (Oxford: Clarendon Press, 1956), 169–79.
Answer Preview: Total value refers to the overall value that an individual places on a particular resource or good, including both its use value (the value of the goo…

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7 Reviews for Cost Benefit Analysis Concepts And Practice Textbook Questions And Answers