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    Meizhi Lim
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    Cost-benefit analysis could be applied to evaluate the Three Gorges Dam project by: 1) Identifying all relevant costs and benefits, both private (e.g. construction costs, profits) and external (e.g. environmental impacts, relocation costs). 2) Quantifying costs and benefits in monetary terms using estimated values, though this is difficult for intangible external impacts. 3) Forecasting future costs and benefits over the dam's lifespan using statistical techniques, though accuracy is uncertain given changing values over time. 4) Comparing total estimated costs and benefits to determine if benefits outweigh costs, in which case the project would increase social welfare. However, cost-benefit analysis has

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    Cost-benefit analysis could be applied to evaluate the Three Gorges Dam project by: 1) Identifying all relevant costs and benefits, both private (e.g. construction costs, profits) and external (e.g. environmental impacts, relocation costs). 2) Quantifying costs and benefits in monetary terms using estimated values, though this is difficult for intangible external impacts. 3) Forecasting future costs and benefits over the dam's lifespan using statistical techniques, though accuracy is uncertain given changing values over time. 4) Comparing total estimated costs and benefits to determine if benefits outweigh costs, in which case the project would increase social welfare. However, cost-benefit analysis has

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    95 views2 pages

    Essay Question 1 (B)

    Uploaded by

    Meizhi Lim
    Cost-benefit analysis could be applied to evaluate the Three Gorges Dam project by: 1) Identifying all relevant costs and benefits, both private (e.g. construction costs, profits) and external (e.g. environmental impacts, relocation costs). 2) Quantifying costs and benefits in monetary terms using estimated values, though this is difficult for intangible external impacts. 3) Forecasting future costs and benefits over the dam's lifespan using statistical techniques, though accuracy is uncertain given changing values over time. 4) Comparing total estimated costs and benefits to determine if benefits outweigh costs, in which case the project would increase social welfare. However, cost-benefit analysis has

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    1b) Discuss how cost-benefit analysis could be applied in the case of the building of the Three Gorges Dam

    (12m) L1 Knowledge about cost-benefit analysis - evaluate projects based on SC & SB (include externalities) - quantify O.C to society of many possible outcomes of an economic decision - apply in public projects (eg. Airports, rail projects, parks) which affect society far into future - different from private projects that consider PC & PB but ignore externalities - take into account both private and external costs and benefits L2 CBA steps + L3 Evaluation 1. Idenitification of all relevant costs and benefits - Private cost: Cost of construction of Three Gorges Dam, worker safety when at work - Private benefits: Profits earn after construction, stimulate economics growth, power generation, flood control - External cost: noise pollution, land pollution, loss of habitat of wildlife, affect people living and force to relocate - External benefits: tourism in the country (Yangtze River), international recognition, job opportunites (need to hire to watch over dam) Evaluation: - may not cover everyone affected cannot include all stakeholders some groups might be left out of decision - there are potential stakeholders who stand to be positively or negatively affected by the decision 2. Quantifying into monetary value - use shadow prices (estimated price) - eg: loss of countryside and have to relocate, what value to place on (1.5 million affected people value annual loss of countryside at RM100 then cost = RM 1.5 x 10^8) Evaluation: - difficult to put monetary value to C&B especially externalities which are intangible - doubts to ascertain the value of loss of home/countryside 3. Forecast future cost and benefits - employ statistical forecasting techniques to estimate costs and benefits of Three Gorges Dam over many years - able to plan properly and budget on right amount Evaluation: - difficult to quantify, accuracy of calculation probability of future C&B occurring is questionable because different generations different value systems

    4. Decision making - if construction of Three Gorges Dam SB>SC (which is +net benefits), government should undertake project as it benefits the society and everyone gains benefits. Increase society welfare - Evaluation: pressure groups may lobby for public to reject, to conciliate government abandon it - if construction SC>SB (+net cost) government should reject the project because it will not bring much benefits to the society but only profit the private firms. - Evaluation: politicians may go ahead to retain political power and earn profits (profitable) L4 Conclusion - aid for decision making but not replacement - despite its limitation, still best tool available because evaluate projects based on true cost to society as it includes all externalities

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