Question

The national Environmental Protection Agency has established that 2.3% of the median household income is a reasonable amount to pay for safe drinking water. For a median household income of $48,000 per year, what would the health benefits have to be (in dollars per household per year) for the B/C ratio to be equal to 1?

The health benefits will be $ ---------

Answer 1

Solution:

Median household income = $48,000

Environmental Protection Agency has stated that 2.3% of the median household income is a reasonable amount to pay for safe drinking water.

So,

Cost of safe drinking water = (2.3/100) * $48,000

Cost of safe drinking water = $1,104

Benefit/Cost (B/C) ratio = 1

Benefit/Cost ratio = Benefits/Cost

1 = Benefits/$1,104

Benefits = $1,104

Thus,

The health benefits have to be $1,104 per household per year for the B/C ratio to be equal to 1.