Why may welfare assessment based on GDP be misleading if crime raises private security and medical spending?
Answer and explanation
Correct answer: Because higher spending may raise GDP while safety and health worsen
The governing concept is defensive expenditure. Market purchases of private guards, alarms, treatment, or medicines are counted in GDP because they represent paid production. However, the spending may be a response to crime and illness, which have already reduced safety and well-being. Thus option C is correct: measured output can rise even while the underlying social condition worsens. The other options wrongly deny either GDP inclusion or the social cost of crime.
Frequently asked questions
What is the correct answer to this question?
Because higher spending may raise GDP while safety and health worsen
Why is this the correct answer?
The governing concept is defensive expenditure. Market purchases of private guards, alarms, treatment, or medicines are counted in GDP because they represent paid production. However, the spending may be a response to crime and illness, which have already reduced safety and well-being. Thus option C is correct: measured output can rise even while the underlying social condition worsens. The other options wrongly deny either GDP inclusion or the social cost of crime.
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.
