Question

A local college is deciding whether to conduct a campus beautification initiative that would involve various projects, such as planting trees and remodeling buildings, to make the campus more aesthetically pleasing. For the students of the college, the visual appearance of the campus is and . Thus, the visual appearance would be classified as a public good. Suppose the college administrators estimate that the beautification initiative will cost $1,540. To decide whether the initiative should be undertaken, administrators conduct a survey of the college's 380 students, asking each of them their willingness to pay for the beautification project. The average willingness to pay, as revealed by the survey, is $14. The benefit of the beautification initiative, as suggested by the survey, is $_______. Because the estimated benefit is than the cost, the college administrators undertake the beautification initiative. The calculation of the benefit of the beautification initiative relied on the ability of the administrators to capture the true willingness to pay of each student accurately. Which of the following scenarios would cause the survey used by the college administrators to yield misleading data on willingness to pay? A. Students are surveyed at random, using conventional survey and data-gathering methods.B. Students believe that if the initiative does not happen, the funds for the initiative will not be spent elsewhere.

Answer 1

Answer:

a) Benefit = (380 students multiplied by Willing to pay) minus the Initiative's cost

(380 x $14) - $1,540 = $3,780

b) The benefit is more than the cost.

c) B. Students believe that if the initiative does not happen, the funds for the initiative will not be spent elsewhere.

Explanation:

1. A benefit is the positive result of a transaction, initiative, or project.  It is calculated as the difference between the revenue derived from the project minus the cost.  A project is acceptable if the benefits outweigh the cost.  Since beautification is a public good, the benefit is not only in terms of finances, environmental beautification is a benefit in its own right.

2. A random sample is a sample obtained using the sampling technique called random sampling.  It is used to avoid bias.  Using the entire population also avoids bias.  So random sampling is a good method of surveying and gathering data, and as such does not "yield misleading data."