1. Pareto improvement
a) Explain the following concepts, illustrating your answer with diagrams where appropriate:
(i) an actual Pareto improvement;
(ii) a potential Pareto improvement;
(iii) the Kaldor-Hicks criterion.
b) Which of these concepts can be used to formulate a practical choice criterion in benefit-cost analysis and why may it be difficult to use one or more of the others in this way.
Question 2: Choice criterion
a) Using a hypothetical example explain the following concepts:
(i) net present value;
(ii) benefit-cost ratio.
b) Explain where and why the use of these is appropriate.