Term
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Definition
| The opportunity cost of using an input to implement a policy is its value in its best alternative use |
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Term
| Equilibrium demand schedule |
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Definition
| A demand schedule wherein the price and quantity are such that the market price and market quantity are maximized in relation to one another, all other things being equal. |
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Term
| Marginal excess burden of taxation (METB) |
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Definition
| The change in deadweight loss resulting from raising an additional dollar of tax revenue |
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Term
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Definition
| The expected value of information gained by delaying an irreversible decision |
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Term
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Definition
A parameter, greater than 1, for weighting private-sector investment flows. This converts investment flows into their consumption equivalents.
Importance: If the gov’t used a lower discount rate than the private sector, then it would undertake projects that the private sector would not and it would grow undesirably large |
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Term
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Definition
The maximum amount of money that consumers would be willing to pay to avoid a price increase is the amount required to return them to the same level of utility they enjoyed prior to the change in price
Importance: If the consumer had to spend any more than the value of their compensating variation, then they would be worse off paying to avoid the increase than allowing it to occur |
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Term
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Definition
| The amount that individuals are willing to pay for policies prior to the realization of contingencies Importance: Considered to be the theoretically correct measure of willingness to pay in the circumstance of uncertainty |
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Term
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Definition
The amount of money paid that would cause a consumer to lose as much utility as a price increase
Importance: Equivalent variation can serve as an alternative to compensating variation where we are interested in measuring the substitution effect by holding utility constant after the price change |
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Term
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Definition
Whose benefits and costs should be included in a given analysis
Importance: This is step 2 of any basic CBA |
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Term
| Equivalent annual net benefit method |
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Definition
The equivalent annualized net benefits method divides the present values of net benefits of projects by their annuity factors to convert them to streams of constant annual net benefits.
Importance: As projects can be replicated, one can think of the project as yielding the annualized net benefit in perpetuity. Consequently, even in comparing projects with different time horizons, the project with the largest annualized net benefit will have the largest present value of net benefits. |
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