Describe how a consumer can use a cost-benefit analysis to decide between buying a concert ticket or buying a new pair of jeans!
Before we decide between buying a concert ticket or a new pair of jeans, let’s take a look of what exactly cost benefit analysis is.
A Cost Benefit Analysis (CBA) is a process by which business decisions are analyzed. The CBA is done to determine how well, or how poorly, a planned action will turn out. Although the cost-benefit analysis can be applied for almost everything, it is most commonly used in financial case. The benefits of a given situation or business related action are summed, and then the costs associated with taking that action are subtracted. The outcome of the analysis will determine what decision to take.
The process of cost-benefit analysis: the first step in the process to make a list of all costs and benefits related to the decision. Costs should include direct and indirect costs, opportunity costs and potential risks. Benefits should cover all direct and indirect benefits. From the case above that is a cost-benefit analysis to decide between buying a concert ticket or buying a new pair of jeans, let’s make a very simple analysis as following:
|Buying a concert ticket $100||Buying a new pair of jeans $100|
|Opportunity to meet favorite idol||The ticket only used once||Can be worn many times||Need the cost of transportation|
|Having fun||Need the cost of transportation||Modest||Going to the market will encourage people to buy another unexpected items|
|Need the cost of snacks or baverrages||Raise confidence of wearing new items|
|Latenight home will give bad health effect|
From the lists above, we get the benefits of buying new pair of jeans are greater than buying ticket concert. While the costs of buying ticket concert is higher than the costs of buying new jeans. Here, we could decide that buying a new pair of jeans is suggested.