If sales of home-security equipment rise because crime increases, what may happen to GDP and welfare?
Answer and explanation
Correct answer: GDP may rise but security-related welfare may fall
The concept illustrated here is defensive expenditure. Purchases of alarms, locks, cameras, or other security equipment are market transactions and can increase measured GDP. However, the underlying rise in crime creates fear, loss of freedom, and possible harm, reducing welfare. The spending may protect people from some danger but does not make the original insecurity a benefit. Hence GDP may rise while security-related welfare falls, making D correct.
Frequently asked questions
What is the correct answer to this question?
GDP may rise but security-related welfare may fall
Why is this the correct answer?
The concept illustrated here is defensive expenditure. Purchases of alarms, locks, cameras, or other security equipment are market transactions and can increase measured GDP. However, the underlying rise in crime creates fear, loss of freedom, and possible harm, reducing welfare. The spending may protect people from some danger but does not make the original insecurity a benefit. Hence GDP may rise while security-related welfare falls, making D correct.
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.
