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After natural disasters, such as hurricanes, some commentators point to the "bright-side". It is, for example, often pointed out that natural disasters cause GDP for a region to spike upward during the post-disaster cleanup. As someone with an understanding of opportunity costs, if you were asked, what would be your economic analysis of the effects of the natural disaster? Using your knowledge of GDP, explain why GDP might increase during the cleanup. Using your understanding of economic profits, economic losses and opportunity cost, does this mean that the area affected by the natural disaster has experienced economic growth? What are the seen effects? What are the unseen effects?

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Using natural disasters as a lens, this solution looks at economic profits, economic losses and opportunity costs.

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An argument is made that GDP grows after a natural disaster and that this is a positive effect. For argument´s sake let us assume that we are speaking of an earthquake in a developed country. Developing countries are a bit different because a significant portion of their money comes from developed countries and that raises different questions. An earthquake that hits a developed country destroys houses, roads, infrastructure, communication lines, etc. It might also have heavy fatalities. However, insurance companies and the government will pay for the reconstruction and clean up. This means that the area might all of a sudden find itself in the equivalent of a construction boom and providing significant amounts of services ...

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