1.
Discuss the opportunity costs of natural disasters. Calculate (in $$$) your opportunity costs of
natural disaster.
Solution
Natural disasters like floods, earthquakes and hurricanes come seemingly out of nowhere; wreak
intense havoc in a short period, and move on, leaving vast, and largely random, destruction in
their wake. Reports of such events commonly provide estimates of the associated damage bill.
The cost is partially covered by insurance claims and government disaster assistance, but
inevitably much of it falls on the residents of the area hit by the disaster.
if the damage bill measures the cost of restoring assets to their pre-disaster condition, it is also
equal to the opportunity cost of the disaster, namely the goods and services that would otherwise
have been produced and income that would have been generated.
For example, if I work at a monthly salary of $2500, and due to the disaster I’m jobless for a
month. In this case my opportunity cost of the natural disaster would $2500. It means that the
opportunity cost equals the income for the time to recover and move on.