Answer to Question #229264 in Economics for Jennifer Masanabo

Question

2. Explain the concept of opportunity cost using the example of a factory upstream, producing wood 

products and spilling some residuals into the water.

3. The trade-off between efficiency and equity remains unresolved. Should efficiency be sacrificed 

for equity? Motivate your answer

Answer 1

1) Opportunity cost is the value of the next-best alternative when a decision is made; it's what is given up. In the case of a factory upstream, producing wood products and spilling some residuals into the water, an alternative to be considered is collecting residuals from the wastewater and selling them to the interested reprocessing companies.

2) A concern for equity has long been an important aspect of economic analysis. Most economists take for granted the idea that equity and efficiency cannot be achieved together or that greater equity must come at the inevitable cost of a loss of efficiency.