Chapter 1: Problem 12

A layperson says that a proposed government project simply costs too much and therefore shouldn't be undertaken. How might an economist's evaluation be different?

Short Answer

Expert verified

An economist's evaluation of a government project would differ from a layperson's perspective. Rather than focusing solely on monetary costs, economists apply cost-benefit analysis and consider both direct and indirect benefits as well as opportunity costs. Therefore, a government project could be worth undertaking even if the immediate costs are high, provided the long-term benefits outweigh the costs.

Step by step solution

Understand the Layperson's Perspective

In this step, identify what the layperson's argument is. They are saying that the proposed government project costs too much, and because of the high costs, they believe it should not be undertaken. The implied assumption here is that the cost of the project outweighs any potential benefits.

Introduce the Concept of an Economist's Evaluation

In the second step, recognize that an economist’s evaluation would not just focus on the apparent monetary cost of the project. Instead, economists apply the principle of cost-benefit analysis. They would assess both the cost and the expected benefits of the project before making a final decision.

Detail the Economist's Evaluation Process

An economist doesn't stop their analysis at the explicit monetary cost of the project. They would also consider any potential indirect benefits or costs, such as the potential increase in employment opportunities, improvement of infrastructure, enhancement of the local economy, or other long-term effects. They would also consider opportunity costs, which are the value of the next best alternative that must be foregone to undertake the project. So, an economist's evaluation might differ from the layperson's point of view, as they are looking at the broader picture beyond just the immediate costs.

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A layperson says that a proposed government project simply costs too much and therefore shouldn't be undertaken. How might an economist's evaluation be different?

Short Answer

Step by step solution

Understand the Layperson's Perspective

Introduce the Concept of an Economist's Evaluation

Detail the Economist's Evaluation Process

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