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.
Frequently asked questions
What is the correct answer to this question?
Some GDP activity may fall while welfare rises
Why is this the correct answer?
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.
Which subject and chapter does this question cover?
This is a Class 11 Economics question. Chapter: National Income and Related Aggregates. Topic: GDP and Welfare.
