COST-BENEFIT ANALYSIS ucator.

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Presentation transcript:

COST-BENEFIT ANALYSIS ucator

WHAT IS COST BENEFIT ANALYSIS? A process of examining the advantages (benefits) and disadvantages (costs) of each available alternative in arriving at a decision.

WHY USE COST BENEFIT ANALYSIS? IT IS ONE OF THE MOST USEFUL TOOLS FOR INDIVIDUALS, BUSINESSES, AND GOVERNMENTS WHEN THEY NEED TO EVALUATE THE RELATIVE WORTH OF ECONOMIC CHOICES.

HOW DO WE USE COST BENEFIT ANALYSIS? OFTEN TIMES WE MAKE A GRID TO HELP US SEE WHAT WE ACTUALLY GAIN AND LOSE WHEN WE MAKE A CHOICE. WE ARE GOING TO USE THE BELOVED TAIL OF THE THREE LITTLE PIGS TO LEARN HOW TO DO THIS.

BENEFIT OPPORTUNITY COST STRAW WOOD BRICK LOTS OF TIME TO PLAY LOST HIS HOUSE; WAS EATEN BY THE WOLF DECENT HOUSE; GOOD AMT. OF TIME TO PLAY LESS TIME TO PLAY; LOST HIS HOUSE; WAS EATEN BY THE WOLF REALLY NICE HOUSE; DID NOT LOSE HOUSE; WAS NOT EATEN NO TIME TO PLAY

MARGINAL COST: MARGINAL BENEFIT: THE COST OF USING ONE MORE UNIT OF A GOOD OR SERVICE THE BENEFIT OR SATISFACTION OF USING ONE MORE UNIT OF A GOOD OR SERVICE LET’S TAKE A LOOK…

BENEFIT IN APPLES BENEFIT IN WAGES OPPORTUNITY COST: FREE TIME OPPORTUNITY COST: WAGES 1 hr. 1 BUSHEL OF APPLES $71 HOUR$14 2 hrs. 2 BUSHELS OF APPLES $142 HOURS$7 3 hrs. 3 BUSHELS OF APPLES $213 HOURS$0 PICKING APPLES

BENEFIT TIME BENEFIT MONEY OPPORTUNITY COST TIME OPPORTUNITY COST MONEY WORKING 1 HR. WORKING 2 HRS. WORKING 3 HRS. WORKING 4 HRS. EXAMPLE