An example of benefit-cost analysis involves evaluating the financial viability of a program by comparing its total benefits to its total costs.
Consider a hypothetical job training program. Let's say the program costs $13,400 to run and is projected to generate $80,000 in benefits (e.g., increased earnings, reduced unemployment benefits, increased tax revenue) for the participants and the community.
To perform the benefit-cost analysis:
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Calculate the Benefit-Cost Ratio: This is done by dividing the total benefits by the total costs. In this case:
Benefit-Cost Ratio = $80,000 / $13,400 = 5.97
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Interpretation: A benefit-cost ratio of 5.97 means that for every dollar invested in the job training program, $5.97 in benefits are generated. This suggests the program is economically worthwhile.
In summary, this example demonstrates how benefit-cost analysis can be used to assess the economic efficiency of a project or program, helping decision-makers determine whether the benefits justify the investment. The goal is to ensure that the program provides value.
