The Cost Benefit Analysis Of Economic Evaluation †Free Samples

Question: Discuss about the Cost Benefit Analysis Of Economic Evaluation. Answer: The cost benefit principle is one important aspect related to economic decision making. It estimates the monetary value of costs and benefits to the participant of an activity. This estimates economic value of a project. Thee cost benefit analysis determines the net worth of an economic decision. The cost benefit analysis can be applied to any projects such as dams, health care projects, highways or training. Cost and benefits are the primary factors to be considered while taking any decision. Benefits refers to the gain enjoyed by small business, families and community while cost of an activity is the purchase, sales, investment and other related expenditure. The concept though similar to that of value maximization but has a thin line of difference. The cost benefit principle is based on the assumption that behind every decision there must be some gain and some costs. Sometimes cost comes in indirect way such as opportunity cost (Nas, 2016). For example, while investing in a project the opportunity cost is not investing the money in some other way. The basic objective of any decision is to consider the tradeoff between benefit and cost and each time minimize the cost over benefit received. The cost benefit analysis is considered as a pure economic evaluation where costs and benefits are projected in money terms. It represents profit aspect of a project in relation to cost that needs to be carried out. The possible quantitative measurement through cost benefit analysis does not imply that all projects needs to be selected by only considering monetary value (Boardman et al., 2017). In this case, the cost benefit analysis involves numerical figures. However, care should be given on reliability of the findings related to benefits and costs. However, there is a broad interpretation of this principle. There are situations in which neither it is possible nor compulsory to present all the benefits and costs in monetary terms. Under this circumstances, benefits are simply evaluated with some other means like physical units. This does not however reduce the importance of this principles. Consider for example, the benefits of saving life of a human being can never be measured in monetary terms. Nevertheless, cost benefit analysis still provides a useful measure for capturing cost of such operations (Mishan, 2015). There are possible circumstances where quantitative measurement of benefit is not possible either in money terms or in physical units. Then benefit is abandoned from the analysis and the decision is taken only based on cost. The objective then is to accomplish the activity at least possible cost. With the help to cost benefit analysis resources are channeled to the projects where it can yield highest possible gain measured as net benefit to the society. Maximizing net benefit implies attainment of maximum social utility (Hyman, 2014). Costs are usually measured by marginal cost while benefits are reflected from the demand function. Without cost benefit analysis any economic activity involves possible risk of unprofitable operation with wastage of resources and time. References Nas, T. F. (2016).Cost-benefit analysis: Theory and application. Lexington Books. Boardman, A. E., Greenberg, D. H., Vining, A. R., Weimer, D. L. (2017).Cost-benefit analysis: concepts and practice. Cambridge University Press. Mishan, E. J. (2015).Elements of Cost-Benefit Analysis (Routledge Revivals). Routledge. Hyman, D. N. (2014).Public finance: A contemporary application of theory to policy. Cengage Learning.