Reference no: EM133132873

1. Suppose you're considering putting solar panels on your house to reduce electricity expenses. The solar salesperson tells you that it will cost you $32,000 up front, but will save you $4,000/year so it will pay for itself in 8 years.

-Assuming the cost and expected savings numbers are correct, is it true that a savings of $4,000/year for the next 8 years is worth $32,000 in present value (worth $32,000 today)? Explain.

2) Suppose the salesperson acknowledges that he should calculate the present value of the stream of future cost savings. If he wants to make investing in solar look attractive to you, should he use a higher or lower discount rate to calculate the present value of the benefits? Explain.

2. Clearly, it is impossible to place a dollar value on life. However, many projects, policies or decisions have as a benefit (or cost) a decreased (or increased) risk of death. To fully evaluate the costs and benefits, we can't ignore the value of this change in risk of death, but it's incredibly difficult to determine how to value it. One approach is to estimate the "value of a statistical life" using a "revealed preference approach" looking at people's behaviors and decisions.

Explain how this approach to valuing a statistical life could work, using the example on what people were willing to pay for air bags in cars in the 1990s. This was before they were required by law, but when it was well known that they could significantly decrease the risk of death or serious injury in many collisions.

3. Manipulating the axes is a common (and effective) way to distort viewers' perception of your data. There are many ways to do this, and an approach that may be appropriate for some data may be misleading for other data.

For example, with the average global temperature data, we saw the problem was that the y-axis scale on the "problematic" graph (0-110) was too big, so a range of 55-60 was much better for clearly illustrating what was happening. In other cases-like a stock price variation--showing only a range from $155 - $160 would likely be too small, and a bigger (say, $100-$210) range would be more 'accurate'.

Explain why, if you're trying to accurately convey useful information, the appropriate range of the y-axis is different in these two cases.

4. You are reading the news and see a headline that says "Running causes cancer." You read further to see this comment is based on the fact that a study showed that distance runners have a significantly greater incidence of melanoma (skin cancer) than non-runners. Does the data support the headline? Explain what factors you would consider in critically evaluating the claims of this article and the study to which it refers.