1. (i). What are the differences betweena "Notional Demand Function" and an "Empirical
2. Demand Function"?
3. (ii) Which demand function is more appropriate for a Cost-Benefit Analysis of"Lake
4. Simcoe stocking Project" in Ontario?Why?
5. (i) Discuss three key differences between a Cost-Benefit Analysis (CBA) and a Cost
6. Effectiveness Analysis (CEA)?
7. (ii) If you have access to all relevant benefits and costs of a public policy, will you perform aCBA or a CEA to determine its worthiness from society's point of view? Explain.
8. MentalillnessispervasiveinCanada.Itisestimatedthatoneinfiveadultsinthiscountry suffers from some form of mental illness. The government of Ontario recently launched a major program to deal with mental health issues initially for ten years. You have been hired to perform a Cost-Benefit Analysis to determine the effectiveness of behavioural therapy to address mental depression in Ontario.
9. (i) Who should have standing in this CBA? Why?
10. (ii) Identifyseven relevant benefits and costsofthis project.
11. (iii) Categorize the benefits and costs identified in (ii) above into:DirectBenefits/Costs,PecuniaryBenefits/Costs andTechnologicalBenefits/Costs. Providerelevant explanationin each case. [Hint: Use a tabular approach].
12. Figure1showsariverinNepalthatflowsfromtheNorthpassesarecreationalarea(area A) on the West and farmland used for growing rice on the east (area D). The river then flows through area (C), which is currently used to grow vegetables by poor and marginal farmers. Farmers in this area also permit donkey rides free of charge for riders from surrounding villages. To the west of area C is area B, which is partly commercial consisting of shops, food centres and rice mills. Then the river flows under a bridge and farther South. The river has not been used to irrigate farmland in area D.
13. The government of Nepal recently proposed that a dam be built at the site of the bridge to provide irrigation to rice field owned by rich farmers in area D. This dam would transform area C into a lake. Area E would become a recreational area. Water from lake C will be

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A.

Information asymmetry can be found in a typical product or job market in Canada. Sellers may know more about the quality and safety of a product than the buyers. Similarly, an employer may know more about the working conditions and job-related health risks than their workers.

(i)Use an appropriate demand and supply diagram to show and explain two important effects of information asymmetry in a product market which suggest the rationale for government intervention.

(ii)Under what circumstances, the benefits of government intervention are likely to exceed the costs? Explain.

diverted via an irrigation ditch to area D, thus increasing rice production and the value of farmland in area D. The physical attributes of area A will not be affected.

The Asian Development Bank (ADB) has agreed to fund this project but wishes to conduct a Cost Benefit Analysis before the project begins. You have been hired as a consultant for this job.

Identifythreeeconomic, threeenvironmentaland twoincome distributionalimpactsrelevant for this project.

Categorize the impactsidentified above into direct, technological

and pecuniary benefits and costs with an appropriate justification for each. [Hint: Use a tabular approach.]

Which impacts would you include in your CBA for this project? Why?

Question No. 2: Total Marks=25 [10(7+3) + 10(3+3+4) +5]

(B).A recent article published in "Globe and Mail" revealed that addiction to video gamesamongchildrenand "young-at-heart" adultsis growing in Canada.Use an appropriate diagramwith two linear demand curves,DArepresenting the demand function for video games by players who are addicted to video games andDRrepresenting the demand function for video games by players who enjoy playing video games but are not addicted to these games. Assume that the supply function of the video games is perfectly elastic at PO.

(i) Determine the quantity of video games demanded byaddicted and non-addictedplayers. Explain.

(ii) Determine consumer surplus enjoyed by non-addicted players

(iii) Determinethe social benefits of a programdesigned to rehabilitate all

addicted players of video games so that they all become recreational players. Explain your results.

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(C). If the price of electricity in Ontario increases, it would lead to reduced demand for electricity (primary market) in this province. Higher price of electricity shifts the demand for electric stoves. The market of electric stove is competitive and the market price of stoves in Ontario does not change.

Will you incorporate any change in total surplus in the market for electrical stoves in your Cost-Benefit Analysis of the electricity market in Ontario?Explainusing an appropriate demand and supply diagram.

Question No. 3: Total Marks=35 [20+10+5]

(A). The Government of Canada would like to preserve a piece of land along the North Shore of Lake Superior as a wilderness park. The land is currently owned by a First Nation Band. On behalf of the Federal Government, the Director of Parks and Recreation Canada is negotiating a deal with the Chief of the First Nation Band. The following options are being considered.

Option #1(a Short lease):Lease the land for next 20 years in return for a payment of $10 million, which will be paid at the time of signing the lease. The Governmentcannot change any attributeof this piece of land during the lease period.

Option #2 (a Long lease):Lease the land for next 50 years in return for a payment of $18.5 million, which will be paid at the time of signing the lease. The First Nation Band willdevelop one wilderness trail at no cost to the Govt. of Canada immediate after signing the contractunder this option.

Option #3 (Purchase):Sell the land for $37 million, which will be paid at the time of transferring the ownership of the land. The Government canchange any attributeof this piece of land after purchase.

The research economist at Parks and Recreation Canada estimated that in its current condition the land would generate $750,000 per year in benefits to hikers, hunters, bird watchers, and campers. The development of one wilderness trail under option#2 would lead the benefits to grow by 0.5%. If, however, 10 campsites and 5 new trails are developed at the cost of $750,000 immediate after purchasing the land and maintained at a cost of $150,000 per year, then thenet benefitswould grow at a rate of 2 percent per annum.

Assume that:

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the lease prices inoption #1and in option #2 and the purchase price inoption #3,represent the social opportunity cost of this land and the Govt. of Canada facesno capitalconstraint.

thenominal social discount rate is 5 percent, and theexpected rate of inflation is 1.5%; and,

The benefits and maintenance costs are all measured inreal dollarsand accrueat the end of each year.

Use an appropriate Cost-Benefit Analysis to determine if the Government of Canada should exercise option #1, option #2 or option #3.Show the results of your systematic analysis and explain them to the director so that he/she can make an informed decision.

(B) The initial cost of constructing a permanent dam is $650 million in Bolivia. The dam is expected to last for 125 years. The annual net benefits will depend on the availability of optimum amount of rainfall: $25million in a "dry" year, $35million in a "wet" year, $45 million in a"Cyclone" year and $60 million in a "flood" year. Meteorological records indicate that overthe last 100 years there have been 60 "dry" years,15 "wet" years, 15"Cyclone" yearsand 10"flood" years. Use an appropriate Cost-Benefit Analysis to determine the net benefits of the dam if the real social discount rate is 5 percent.Show calculation and Explain your results.

(C). Suppose the greenhouse gas build-up in Canada will impose a net cost of $2 trillion in300 years' time. Such a catastrophic impact could be avoided, however, if the Government ofCanada invests $500 million now on a greenhouse gas abatement project.

Should the Government of Canada undertake this project if, the real

SDR is 8% as recommended by the Treasury Board of Canada?Show your

calculation and explain your results.