4. Cost-benefit analysis A local college is deciding whether to conduct a campus

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. and . Thus, the visual appearance For the students of the college, the visual appearance of the campus is would be classified as a public good. Suppose the college administrators estimate that the beautification initiative will cost $4,400. To decide whether the initiative should be undertaken, administrators conduct a survey of the college's 300 students, asking each of them their willingness-to-pay for the beautification project. The average willingness-to-pay, as revealed by the survey, is $11. . Because the estimated benefit is than the The benefit of the beatification initiative, as suggested by the survey, is cost, the college administrators 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 An equal number of male and female students were surveyed. students believe that if the initiative does not happen, the funds for the initiative will not be spent elsewhere.

Explanation / Answer

Non rival and Non excludable because we cannot exclude other from enjoying it and also consumption of one doesn't affect consumption of others.

Total benefits = willingness to pay = 11*300= 3300.

Less ( 3300<4400) , will not

Students believe that if initiative doesn't happen the funds for the initiative will not be spend elsewhere.

Otherwise students will not tell their true valuation .

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