6. Public Economics and Policy

Cost Benefit Analysis — Quiz

Test your understanding of cost benefit analysis with 5 practice questions.

Practice Questions

Question 1

In a Cost-Benefit Analysis, what is the term for the value of the next best alternative that was not chosen?

Question 2

When evaluating a public project using Cost-Benefit Analysis, what is the primary reason for converting future benefits and costs to their present value?

Question 3

A city is considering two public projects. Project A has a Net Present Value (NPV) of $$ \$500,000 $ and Project B has an NPV of $ \$700,000 $$. Based solely on NPV, which project should the city choose?

Question 4

Which of the following best describes an 'external cost' in a Cost-Benefit Analysis?

Question 5

A public project has an initial cost of $$ \$100,000 $. In the first year, it generates benefits of $ \$60,000 $ and costs of $ \$20,000 $. In the second year, it generates benefits of $ \$70,000 $ and costs of $ \$25,000 $$. Assuming no discounting, what is the total net benefit after two years?