Cost-Benefit Analysis Vocabulary & Examples

What is an indirect cost?

• expenses that are necessary for a financial decision but are not directly associated with it

• a cost directly tied to the decision

• A measure of the average change in the prices of goods and services purchased by urban consumers over time

• the gap between limited resources and limitless wants

What is a direct cost?

• rate of increase in prices over a given period of time

• the potential benefits that a business, an investor, or an individual consumer misses out on when choosing one alternative over another

• a cost directly tied to the decision

• the monetary charge for the privilege of borrowing money

Which financial decision shows the best cost-benefit thinking?

• Buying a luxury car to look successful

• Buying a 2 year old car with low insurance and low mileage

• Buying a brand new car with a higher monthly payment

4. You're choosing between two cell phone plans:

   • Plan A: $70/month, unlimited data

   • Plan B: $50/month, 5GB data limit

   • What is the best consideration for you to make?

• ask your friend to pick one randomly

• always choose the cheapest plan

• compare your actual data usage to the plan limits

• pick the plan with the best features

What is opportunity cost?

• the distribution of scarce resources

• what you gain from a financial decision

• taxes on expenditure

• what you have to give up to make the financial decision in terms of other goods or services

What is a cost benefit analysis?

• Asking your parents to make the decision for you

• Weighing the pros and cons of a decision and making a reasonable decision based on the pros and cons

• When the good of a decision outweighs the bad

• Government taxes

You want to save money on lunch. Which of the following is the best cost-benefit-based outcome?

• Skip lunch to save money

• Meal prepping at home for $3 a meal

• Buying pre-made meals for $8 each

• Going to McDonalds everyday

Which scenario is the best decision for saving money?

• Buying all of the Taylor Swift tour merch for $1000 even though you think some of it is ugly and won't wear it

• Paying $15 a month for a magazine subscription you never read

• Buy a meal prep service for $200 that saves you $10 a day on eating out

• Paying $75 a month for Netflix because you watch a lot of shows on it

Terrence wants to adopt a dog from a local shelter. The direct costs per month are about $150. What would be a reasonable price to estimate his reduced stress?

• $10

• $500

• $700,000

• $3,000,000

Carly loves to watch Netflix. She has to pay $20 a month to keep the subscription. She decides to save money and get rid of it, but is really sad she can't watch her shows anymore. Was this a good cost-benefit based decision?

• No, because the joy Carly got from watching shows was worth more than $20 a month.

• No, because the joy Carly got from watching shows was worth less than $20 a month.

• Yes, because the joy Carly got from watching shows was worth less than $20 a month.

• Yes, because the joy Carly got from watching shows was worth more than $20 a month.