Question 1

It is impossible to incorporate the value of human life into implicit and explicit cost-benefit analyses.

Accepted Answer

While challenging, economists and policymakers often incorporate the value of human life into cost-benefit analyses through methods like the Value of a Statistical Life (VSL), which estimates the monetary value people place on reducing their risk of death.

Question 2

It is impossible for corporations to avoid trading their own gain against others' lives.

Accepted Answer

Corporations are profit-driven entities, and their primary goal is to maximize shareholder value. This can sometimes lead to decisions that prioritize profits over the well-being of others.

Question 3

In terms of exposing others to risk, explain if there is a difference between you choosing to text while driving and a company selling tablet computers where the batteries have been known to explode when the tablet is left on for a long period of time.

Accepted Answer

The answer of In terms of exposing others to risk,...

Question 4

After researching the effectiveness of child safety seats in reducing the accident death rate of children ages one to four, economist Steven Levitt found that

Accepted Answer

The answer of After researching the effectiveness of child safety...

Question 5

The Eyes Wide Open Company is considering producing binoculars that can be used to directly view the sun during a solar eclipse, but it knows that some customers could potentially go blind when using the product. The Eyes Wide Open Company

Accepted Answer

The company must account for the potential harm their product could cause in their cost-benefit analysis to make an informed decision about production, considering both ethical and financial implications.

Question 6

According to cost-benefit analysis, where safety is concerned

Accepted Answer

Cost-benefit analysis in safety can show scenarios where safety measures are insufficient (not safe enough), excessive (too safe), or optimal (just safe enough), depending on the balance between the costs of safety measures and the benefits in terms of reduced risk.

Question 7

A cost-justified precaution is a safety measure whose

Accepted Answer

A cost-justified precaution is one where the benefits of implementing the safety measure outweigh the costs involved in doing so.

Question 8

A chain saw manufacturer can make its chain saws safer by adding a titanium chain guard to its products. Adding the titanium chain guard costs $35 per chain saw. The manufacturer estimates that this will prevent 10 injuries for every 5,000 chain saws sold and that, on average, each injury causes $15,000 of harm. The injury cost per chain saw is

Accepted Answer

The answer of A chain saw manufacturer can make its...

Question 9

A chain saw manufacturer can make its chain saws safer by adding a titanium chain guard to its products. Adding the titanium chain guard costs $35 per chain saw. The manufacturer estimates that this will prevent 10 injuries for every 5,000 chain saws sold and that, on average, each injury causes $15,000 of harm. The manufacturer

Accepted Answer

The answer of A chain saw manufacturer can make its...

Question 10

A handgun manufacturer can make its handguns safer by adding a fingerprint recognition device to its products, so only the owner would be able to fire the gun. Adding the fingerprint recognition device costs $145 per handgun. The manufacturer estimates that this will prevent 150 injuries for every 100,000 handguns sold and that, on average, each injury causes $120,000 of harm. The injury cost per handgun is

Accepted Answer

The injury cost per handgun is calculated by multiplying the average harm per injury ($120,000) by the number of injuries prevented (150) and then dividing by the number of handguns (100,000). This gives ($120,000 * 150) / 100,000 = $180.

Question 11

A handgun manufacturer can make its handguns safer by adding a fingerprint recognition device to its products, so only the owner would be able to fire the gun. Adding the fingerprint recognition device costs $145 per handgun. The manufacturer estimates that this will prevent 150 injuries for every 100,000 handguns sold and that, on average, each injury causes $120,000 of harm. The manufacturer

Accepted Answer

The cost of adding the fingerprint recognition device ($145 per handgun) is justified by the reduction in harm costs ($120,000 per injury prevented). Preventing 150 injuries for every 100,000 handguns sold results in a savings of $18,000,000 (150 injuries * $120,000), which outweighs the cost of adding the device to each handgun when sold at scale.

Question 12

Suppose that the local health board discovers some unsanitary conditions at your favorite sushi restaurant. An economist would likely have what to say about this situation?

Accepted Answer

Economists often analyze situations in terms of cost-benefit analysis. They would consider whether the cost of eliminating all unsanitary conditions outweighs the benefits, rather than making absolute statements about what should or should not be done based on moral or health grounds alone.

Question 13

With respect to the Ford Pinto, comparing the cost of the modification to the fuel tank with the lives the modification would save was the best way Ford could save the greatest number of lives at the lowest possible cost.

Accepted Answer

The statement is true because by comparing the cost of the modification to the fuel tank with the lives the modification would save, Ford could determine the most cost-effective way to prevent the greatest number of deaths.

Question 14

If a company could spend $3 per bicycle on a safety device that would prevent $2,000 worth of harm for every 1,000 bicycles sold, spending the $3 would be a cost-justified precaution.

Accepted Answer

The answer of If a company could spend $3 per...

Question 15

Companies are never justified in not installing all possible safety devices in their products when the omission of those safety devices could result in the loss of life to the users of the products.

Accepted Answer

Companies often have to balance the cost, practicality, and effectiveness of safety devices against the potential risks. In some cases, the addition of all possible safety devices could make a product prohibitively expensive or impractical for its intended use, leading companies to implement the most effective measures that reasonably mitigate risk without compromising the product's accessibility and functionality.

Question 16

A safety measure whose benefits outweigh its costs is called a ________.

Accepted Answer

The answer of A safety measure whose benefits outweigh its...

Question 17

A manufacturer of industrial paper shredders can make its machines safer by adding a laser-sensored kill switch to its products. Adding the kill switch costs $17 per machine. The manufacturer estimates that this will prevent 50 injuries for every 30,000 paper shredders sold and that, on average, each injury causes $5,500 of harm. What is the injury cost per paper shredder? Explain whether the manufacturer should or should not add the kill switch to the paper shredder.

Accepted Answer

The answer of A manufacturer of industrial paper shredders can...

Question 18

Commercial airlines have two primary suppliers of large jet aircraft: Boeing and Airbus. Since millions of people fly with commercial airlines each year, should these aircraft manufacturers be required to incorporate every possible safety feature into the aircraft they manufacture? Should the manufacturers be allowed to incorporate no safety features? If some safety considerations are to be required, how would an economist decide on which features to include and which not to include?

Accepted Answer

The answer of Commercial airlines have two primary suppliers of...

Question 19

If the risk associated with a particular outcome is ________, or the value of a particular outcome is ________, then cost-benefit analysis might lead people to take precautions that are not cost-justified.

Accepted Answer

If the risk is overestimated or the value of the outcome is underestimated, people might take unnecessary precautions because they perceive the risk to be higher or the benefits to be lower than they actually are.

Question 20

If the risk associated with a particular outcome is ________, or the value of a particular outcome is ________, then cost-benefit analysis might lead people to indulge in too much risk.

Accepted Answer

If the risk is underestimated, people might not fully appreciate the potential negative consequences of their actions, leading them to take on too much risk. Similarly, if the value of an outcome is overestimated, individuals might pursue it more aggressively than is warranted, again leading to excessive risk-taking.

Quiz 2: Cost-Benefit Analysis and the Value of a Life