The cost-benefit analysis helps companies analyze business decisions. It is a method used by analysts, to sum up, the benefits of an action and the costs associated with taking that action. Cost-benefit analysis can also be used to create models to evaluate the potential costs incurred and the revenue generated from a project.
Cost-benefit analysis provides results that can help us know if a project is viable or if the company should take on another project. In most models, this type of analysis may also include the opportunity cost into the decision-making process. Opportunity cost is the benefit you realize when you choose an alternative over the product of choice. Including the opportunity cost allows business managers to weigh the benefits realized from taking an alternative course of action instead of the current choice being considered. Cost-benefit analysis is considered more thorough and supports informed decision making since it considers all options and potential missed opportunities.
Public finance is a subject that covers a country's expenditure, debt, and revenue collection management. It entails several components including expenditures that support the society and making financial strategies. These components can be broken down into:
Collection of taxes
Taxes are the primary sources of revenue for most governments. Examples of taxes that the government can impose on its citizens include income tax, sales tax, property tax, etc. Other sources of revenues under this category may also include funds realized from types of services that are not free and tariffs on imports.
A budget is a plan that outlines all the expenditures of the government in a fiscal year. In the US, the president usually submits a budget to congress, then the senate and house create bills for all the specific aspects of the budget. Lastly, the president signs the proposed bills into law.
Expenditures encompass everything that the government spends money on. Examples of expenditures may include infrastructure development, education, social programs, and many more. All government expenditures are considered forms of wealth or income distribution. The other components of public finance are deficit, surplus, and national debt.
Taxation is the financial obligation imposed on citizens by the government. The term taxation is used to refer to all forms of involuntary levies ranging from estate taxes to income and capital gains. Taxation is not tied to any services rendered. It also does not require the consent of the citizen. The government normally uses an implicit or explicit threat of force to compel citizens to pay taxes. Taxation is legal and different from extortion or protection racket. This is because taxes are imposed by the government and not private groups.
The main purpose of taxation is to fund government expenditures. In ancient times, taxes were used to support nobles and the ruling classes, build defenses, and fund armies. Today, taxes are seen as a way of creating a more equitable society. Taxes are also used to deter the consumption of certain products. For example, gasoline and tobacco are highly tasked. Additionally, public goods advocates usually argue that taxes play a critical role in situations where private provisions of public goods are deemed sub-optimal. For example, the national defense or lighthouses.