Chapter 20, Problem 1VQP

To determine

Describe the simple majority decision rule with a numerical example.

Explanation of Solution

Suppose the government decides to make a cost benefit analysis in the economy, it takes 6 persons including supporters and the people who oppose the project. Also calculate the cost and benefit from them as shown in the table below:

Table 1

Voters	Benefits	Taxes	Votes
A	50	30	Yes
B	40	30	Yes
C	35	30	Yes
D	31	30	Yes
E	2	30	No
f	1	30	No

According to the table, the analysis is taken between 6 persons. The total cost of the project is given as $180 and the total benefit from it is given as $159. Here, the total cost from the product is greater than the total benefit. As per the rule, the government will not take the project on reality. However, in this case, the majority of them in the side of supporters of the project than the antagonist. Then here the majority decision rule can take place, the project is passed, even though its cost is high.

Economics Concept Introduction

Cost benefit analysis: Cost benefit analysis is a process to analyze the cost of the project and the benefit from it. Also, this process helps to decide the project being undertaken or rejected.

Simple majority decision rule: The majority rule is a decision rule, if majority support the project than the opposed, the project will be passed, and even its cost is greater than the benefit from it.