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HomeHomework HelpeconomicsCost Benefit Analysis

Cost Benefit Analysis

Cost-benefit analysis in psychology refers to a decision-making process that evaluates the potential benefits of an action or choice against its associated costs, often used to understand individuals' rational behaviors and motivations. This approach helps determine the most advantageous option by quantifying the expected outcomes and weighing them against potential drawbacks.

intermediate
3 hours
Economics
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Overview

Cost Benefit Analysis (CBA) is a vital tool used in various fields to evaluate the financial implications of decisions. By systematically comparing the costs and benefits of different options, CBA helps individuals and organizations make informed choices that maximize value. Understanding the compon...

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Key Terms

Cost
The value of resources used to produce a good or service.

Example: The cost of materials for a construction project.

Benefit
The positive outcomes or advantages gained from a project.

Example: Increased revenue from a new product launch.

Net Present Value (NPV)
The difference between the present value of cash inflows and outflows over time.

Example: An NPV of $10,000 indicates a profitable investment.

Opportunity Cost
The cost of the next best alternative foregone when making a decision.

Example: Choosing to invest in project A over project B.

Discount Rate
The interest rate used to determine the present value of future cash flows.

Example: A discount rate of 5% is used to calculate NPV.

Tangible Benefits
Benefits that can be easily quantified and measured.

Example: Increased sales revenue from a marketing campaign.

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Key Concepts

CostsBenefitsNet Present ValueDecision Making