Question

Does cost-benefit analysis apply to public goods only? If yes, why? If not, name situations in which economists would use cost-benefit analysis.

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Answer 1

cost benefit analysis does not apply to public goods only. in many situations mainly economic decisions are made after considering a projects cost and the benefit that one can receive out of it. cost benefit analysis is a very essential tool people use while making any decision for a new project or even for a existing one if needed. there are various situations where economists take cost benefit approach into consideration while undertaking a project under public good. for example while making a park for the children and say comparing it with some other thing like making a library. here economists take into consideration which project will cost what and what will be the benefit out of it and accordingly government takes decission whether to execute the project or not.

like wise in many private projects also before executing the plan a company always takes into account the cost and the benefit of it. for example say there is a company which produces umbrella.suddenly due to heavy rainfall the demand for umbrellas increases humongously but due to capacity constraint the company can only produce 100 umbrellas each time. if the country wants to produce more at a time it has to install new machines in the firm and also manpower to run it. in this case the firm will first take into consideration the total cost it has to incur and the benefit it will get from it then only the firm will install new machines or will make changes to its firm.