As for the valuation of costs and benefits, if they are
expressed in terms of money , we have to make adjustments to the expected
prices of future inputs and outputs in order to make allowance for the
anticipated changes in the relative prices of the concerned items, but not for
expected changes in the general price level. The expected changes in the output
levels must also be taken into account. Notice has to be taken of monopolistic
elements or other market imperfections. In such cases, investment decisions
based on market prices will not be correct . Some corrections will be needed
for the distortions resulting from market imperfections. Account must also
create divergence between market price and social cost or benefit. Taxed inputs
should be measured at their factor cost instead of their market value. There is
still another cause of divergence between social cost and private cost unemployment.
When at the prevailing price there is excess supply of any input or factor of
production . the price exaggerates the social cost of a project using that input. The utilization of unemployed labor
in investment projects involves no social cost since it does not reduce output
anywhere, because the unemployed labor
us not supposed to make any contribution to output. In this case, the
society as a whole does not forego anything
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