Analysis of Cost Benefit and About Cost Benefits

Cost Benefit analysis is done for the public investment projects. This is used to judge the desirability of public investment of any public products or investment. In this, we don’t analyze the money cost and money benefit; but real cost and real benefit. Here it is concerned with social benefit and social cost. Cost benefit analysis is done for the public products to analysis the social benefits from the public investments. Let us take up an example of construction of a subway.

In the above figure, on the X axis we measure the number of journeys made per week and on Y axis cost per journey. DD shows the demand curve for the journey on that route.

If OP1 is the cost per journey, two wheelers are ready to pay OD as price. So, the consumer surplus is P1AD. This is the situation before the construction of a subway. Now, when a public investment on subway is decided, then the cost benefit analysis is done to see whether this particular investment is beneficial to the society. After the construction of the subway the price of the cost per journey will come to OP2 and the number of journeys will increase to OQ2 which shows that the consumer surplus will increase after the construction of the subway. Before the construction of subway consumer surplus is P1AD and after the subway it will be P2CD. This shows that there is increase in consumer surplus that will be P1ACP2.

There are two parts of the increase in consumer surplus P2 CAP1

P2BAP – increase surplus is due to decrease in the price of cost per journey.

ABC – the increase in consumer surplus due to the increase in number of journeys on that route.

The cost saving segment is the main component to the consumer surplus.

Analysis and Schedule of Law of Supply for Market

There is an inter-relation between a commodity price and supply. Any changes in prices cause the result of extension or contraction of supply. If price increases, there is extension of supply. If price decreases, there is contraction of supply. There is a law of supply which shows the relationship between price and quantity of a particular product supply. Demand and supply are depended on price. If the price matches to quantity demand and quantity supply that means it is equilibrium price. That quantity which is bought and sold at the equilibrium price is called equilibrium quantity. There are basic concepts of supply, law of supply and equilibrium detail.

Supply Analysis:

Supply is related to various quantities of goods, which a seller has wish and able to sell at a different price in a given market at a particular time, other things remaining constant. So, supply is related to amount or quantities which are not coming to market for sale and not the stock in a go-down.

The supply schedule: It shows the schedule of goods and services at different prices. There is an example of supply schedule for Rice.

Now, we can draw a supply schedule curve on the basis of Supply schedule of Rice. Here X-axis shows quantity supply and Y-axis show price. Here, price increases as supply of quantity increases.

Supply Curve

Law of Supply:

It shows the relationship between price and quantity supplied of a particular product. It is known as positive relation when price increases the quantity supply, supply will also increase. We can assume price changes if other things are constant as:

Law of Supply

Shift in Supply:

Supply curve changes in quantity supply if there is any factor other than price. It happens when, the supply curve shifts entirely right or left.

Shift in Supply Curve to right

Shift in Supply Curve to Left

Factors affecting supply:

There are many factors which affect supply like – change in the cost of production, state of technology, political uncertainty and natural factors.

So, all these are law of supply and demand which describes the equilibrium of demand and supply. There are price factors, quantity factors and many other factors which affect all these circles.