Question

After the 9/11 tragedies the USA dramatically increased its spending on homeland security. Assuming the political process followed the wishes of the people what in the rational choice model can explain the public’s wish for more spending on security? Put security spending on the horizontal axis of the graph and all other goods on the vertical axis and describe what happened to move the optimal market basket toward further security goods consumption

Answer 1

Let security be the good on the x axis and all the other goods be on the y axis. Eternal effects like the terrorist attack on 9/11 became a cause for public concern and subsequently there was a deman for increase in spending on homeland security. The consumption of security goods increased with relation to the other goods.

The x intercept of the budget line has increased. The consumer get a welfare gain with the new position of the indifference curve.