Suppose you are asked to evaluate a policy that addresses urban smog problem in
ID: 1250444 • Letter: S
Question
Suppose you are asked to evaluate a policy that addresses urban smog problem in the Chicagoland area. This policy is one of the several ozone-reducing policy options evaluated using cost-benefit analysis. The policy will be implemented over a period of three years.Assume there are 3 million adult residents in the Chicagoland area to whom the benefits would accrue. Also assume that the estimated present value of costs (PVC) for this policy option is $2.5 billion. Is this policy option feasible according to
i) Cost-Benefit Ratio?
ii) Present Value of Net Benefits?
Explanation / Answer
take the present value of benefits for 1 resident, multiply it by all 3 million residents. this will be the PVB. The CBR will be the ratio of the PVC to the PVB. the present value of net benefits is found by taking PVB-PVC.