The Economics of National Security. Lesson 3 . How Much Would You Be Willing to Pay?
You are the owner of a coffee shop in a dangerous part of town. The police force in your town has recently had to reduce the number of officers available for patrol due to budget cuts. Since then your shop has been vandalized three times, and you are worried it may be robbed one day soon. A few shopkeepers in the neighborhood recently got together to discuss the situation and decided they needed to take action; they requested voluntary contributions from all the shopkeepers in the area to pay for private security guards to supplement the patrols provided by the police. Your shop currently makes about $3,000 a month in profits that you take home as your salary. How much of this would you be willing to pay for private security services?
When the free market does not allocate resources to produce goods and services in a socially efficient way.
Many economists believe that, in instances of market failure, the government should step in and provide those goods and services. But how do we know which goods and services the government should provide? And how do we know the “best” way to provide these goods and services?
Cost- what one has to give up to get something.
-Direct (monetary) costs—the market prices of the resources used
-Indirect costs that are not directly observable. Can also be considered “opportunity costs,” or the loss of the next best alternative.
− Direct: A quote about direct costs
− Indirect: A quote about indirect costs
− Benefits: A quote about the benefits of national security spending
− Efficiency: A quote about how the goals of national security spending might be achieved more efficiently by other means (new technologies, more competition, etc.)
What criteria do you consider to be the most important in national security spending? If you had to reform national security policy, what criteria would you consider as most important? (efficiency, costs, benefits, trade offs, etc…) Why?
Why do you think you are being asked to work this hard—why are you being asked to read something written almost 220 years ago in its original language?