Deck 5: The Food Safety Modernization Act FSMA: Evaluating Costs and Benefits

Question 1

With respect to analyzing the economic viability of proposed projects or rules, the initials CBA refer to

A) Current Benefit Assessment
B) Cost Benefit Analysis
C) a Collective Bargaining Agreeement
D) Cooperative Budget Assistance
E) None of the above.

Answer 1

B
Explanation:Cost Benefit Analysis is used to analyze the economic viability of proposed projects or rules.

Question 2

A ______would be indifferent between a lower certainty-equivalent and participating in a game of chance with a higher expected value; the difference between the certainty equivalent and game's expected value is the ______. As a person's behavior becomes more risk averse, his/her risk premium value increases.

A) risk neutral decision-maker, risk premium
B) risk-loving decision-maker, risk premium
C) risk averse decision-maker, risk premium
D) risk neutral decision-maker, negative risk premium
E) risk-loving decision-maker, present value of future earnings.

Answer 2

C
Explanation:A risk averse decision-maker would be indifferent between a lower certainty-equivalent and participating in a game of chance with a higher expected value; the difference between the certainty equivalent and game's expected value is the "risk premium". As a person's behavior becomes more risk averse, his/her risk premium value increases.

Question 3

When we use the Benefit-Cost (B/C) Ratio to evaluate the economic viability of a project, the first step is to determine the present value of the project's benefits are costs. Then the Benefit (B) and Cost (C) present values are respectively placed in the numerator and denominator of the B/C Ratio. A project judged as viable if

A) the value of the B/C ratio is within this range: (50%< B/C < 99%).
B) the value of the B/C ratio exceeds zero: (B/C > 0).
C) the value of the B/C ratio is within this range: (3%< B/C < 7%).
D) the value of the B/C ratio is within this range: (0 < B/C < 1).
E) the value of the B/C ratio exceeds one: (B/C > 1).

Answer 3

E
Explanation:When we use the Benefit-Cost (B/C) Ratio to evaluate the economic viability of a project, the first step is to determine the present value of the project's benefits are costs. Then the Benefit (B) and Cost (C) present values are respectively placed in the numerator and denominator of the B/C Ratio. A project judged as viable if the value of the B/C ratio exceeds one: (B/C > 1)

Question 4

The _________ is the discount rate that equates the present value of a project's benefits and costs. The ______ is a rate-of-return measurement directly comparable to the market's interest rate (r) cost of capital.

A) the stochastic Regession Beta-value
B) Internal Rate of Return (IRR) ρ-value
C) Federal Funds Rate
D) Fed's overnight money-market lending interest rate
E) the 30-year mortgage interest rate

Question 5

Sensitivity Analysis in CBA

A) detemines the consumer elasticity of demand for a project.
B) determines a project's ideal product volume in Stage II of the production function.
C) is a systematic process of measuring the NPV of a proposal across a range of discount rates.
D) determines a project's exact product volume where economies of scale achieve minimum average total cost.
E) recommends that a project expand in size to the point where total benefits = total costs.

Question 6

________ argues that the promise of receiving a future dollar is worth less than having the same dollar amount in the present. A dollar now can be invested at the current interest rate and produce principal plus interest in the future.

A) The Law of Diiminishing Returns
B) The Economies of Scale Concept
C) The trend of long run average fixed cost
D) Present Value Theory
E) The Law of Increasing Opprtunity Cost

Question 7

If a project creates direct net benefits such as increased business profit and an improved consumer surplus, then any gain in asset value associated with the extra income should becounted as part of the total generated benefits.

Question 8

________is a systematic approach to assessing the effects of a proposed rule or regulation. _______ determines the problem that the regulation is attempting to solve, identifies the results of implementing the rule, explores alternative solutions to the problem, and analyzes costs and benefits of those alternatives.

A) Break-Even Analysis
B) Regulatory Impact Analysis (RIA)
C) Stochastic Estimation
D) Straight-line depreciation
E) Disequilibrium analysis

Question 9

When a project is supported by sales or income taxes, then there will be deadweight economic efficiency losses caused by these funding sources. There are also the administrative costs of collecting and monitoring taxation systems.

Question 10

CBA analysts should avoid calculating ________ because they generate both benefits and costs. These are mostly transfers of value and do not create new net benefits.

A) Secondary Effects
B) Shadow Prices
C) Opportunity Costs
D) Marginal Costs
E) Average Fixed Costs

Question 11

If a proposed project causes an involuntarily unemployed person to return to the workforce, then the opportunity cost is _____________, as determined by labor-leisure choice theory and the uncertain duration of involuntarily unemployment.

A) equal to zero
B) a negative value
C) equal to the US minimum wage
D) equal to the US median labor wage
E) some non-zero positive value

Question 12

Preventive Controls for Animal Food

A) have forced many poultry producers to from caged production to raising free-range chickens.
B) is a new PETA-lobbied policy.
C) is one of the Seven FMSA Rules that the FDA is required to implement.
D) is a new rule that allows the SPCA to inspect animal kennels for safety violations.
E) apply to domestic producers of pet food, but foreign producers are exempt from this rule.

Question 13

______ reflect true social marginal costs. Standard economic theory recommends that any cost included in a CBA should accurately measure opportunity cost.

A) Shadow Prices
B) Out-of-pocket cash costs
C) Tariff-Rate-Quotas
D) The genuine number of newly created jobs
E) Prices influenced by externalities

Question 14

The ____________ is the primary federal agency legislatively authorized to implement the FSMA.

A) Congressional Budget Office (CBO)
B) Economic Research Service (ERS)
C) US Department of Agriculture (USDA)
D) Food and Drug Administration (FDA)
E) Department of Homeland Security

Question 15

The Hicks-Kaldor (H-K) Criterion suggests that that if a project's CBA yields a positive NPV, then we need not concern ourselves with any adverse distributional consequences.