Question

4. Cost-benefit analysis

A local college is deciding whether to conduct a campus beautification initiative that would involve various projects, such as planting trees and remodeling buildings, to make the campus more aesthetically pleasing.

For the students of the college, the visual appearance of the campus is (rival; non-rival)  and (excludable; non-excludable). Thus, the visual appearance would be classified as a public good.

Suppose the college administrators estimate that the beautification initiative will cost $8,160. To decide whether the initiative should be undertaken, administrators conduct a survey of the college's 490 students, asking each of them their willingness-to-pay for the beautification project. The average willingness-to-pay, as revealed by the survey, is $17.

The benefit of the beatification initiative, as suggested by the survey, is $________.

. Because the estimated benefit is (greater; less) than the cost, the college administrators (should not; should) undertake the beautification initiative.

The calculation of the benefit of the beatification initiative relied on the ability of the administrators to accurately capture the true willingness-to-pay of each student.

Which of the following scenarios would cause the survey used by the college administrators to yield misleading willingness-to-pay data? Check all that apply.

___Students believe they will eventually be charged their willingness-to-pay

___An equal number of male and female students were surveyed.

Answer 1

a) The visual appearance of the college is "non-rival" and "non-excludable". (no one can exclude anyone from enjoying the beauty of the college and the value of the beauty doesn't decrease after a person has enjoyed it.)

b) The benefit of beautification is (17 x 490) $8330.

c) Estimated benefit is greater the college administration should undertake the beautification.

d) Students believe they will be eventually be charged their willingness to pay. ( this will make them value the beautification less because they will be paying less but actually the value could be even higher. )