Unit Manual Terms 3

Question 1

Minimax Regret Rule

Answer 1

Select strategy with the lowest of the largest regrets

Question 2

Net Benefit

Answer 2

Total Benefit (Measured by WTP) less total costs

Question 3

Net Present Value

Answer 3

The value of a stream of net benefits discounted to its present value

Question 4

Opportunity Cost

Answer 4

The best alternative use forgone

Question 5

Pareto Improvement

Answer 5

A change to the allocation of resources which makes at least one person better off and no-one worse off

Question 6

Pareto Optimal

Answer 6

A situation where it is not possible to make any person better off, without making at least one other person worse off

Question 7

Present Value

Answer 7

Today’s value of a future payment or series of future payments

Question 8

Present Value Rule for 1-time payment

Answer 8

Vo = Vt (1+i)-t

Question 9

Present Value Rule for annual payment of t years

Answer 9

V0 = Va[1-(1+i)-t]/I

Va = Annual Payment
Vo = Total Present Value
i = Interest Rate

Question 10

Probability

Answer 10

The chance of a state of nature occurring