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If crime falls and demand for private security services declines in an economy, what is possible?

Answer and explanation

Correct answer: Some GDP activity may fall while welfare rises

GDP records the market value of final goods and services, so a fall in paid private-security services can reduce measured GDP at the margin. However, lower crime directly improves safety, peace of mind, and time available for productive or enjoyable activities. Therefore, welfare can rise even when defensive expenditure and the related GDP component decline. Option A is too absolute, B ignores non-market benefits, and C is incorrect because paid security services are generally included in GDP.

Related tags

Crime ReductionSecurity ServicesWelfare ImprovementGdp LimitationsGdp And WelfareNational Income And Related AggregatesEconomicsClass 11 Mcq

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