UPSC Prelims 2018 GS Paper I · Q47 of 100 Economy medium

If a commodity is provided free to the public by the Government, then

  1. (a) the opportunity cost is zero.
  2. (b) the opportunity cost is ignored.
  3. (c) the opportunity cost is transferred from the consumers of the product to the tax-paying public. ✓ UPSC's answer
  4. (d) the opportunity cost is transferred from the consumers of the product to the Government.

Why the answer is (c)

• Opportunity cost is the value of the next-best alternative forgone; resources used to produce any good have an opportunity cost regardless of who pays.

• When the Government provides a good free, consumers no longer bear the cost, but taxpayers do — the Government's funds come from taxation — so the opportunity cost is transferred from consumers to the tax-paying public, option (c).

• It is not zero (a) or ignored (b); and the Government (d) is only a conduit for taxpayers' money.

• Hence option (c).

Why the other options are wrong

(a) the opportunity cost is zero.
Resources still have alternative uses; the cost is not zero.
(b) the opportunity cost is ignored.
The cost is borne, not ignored.
(d) the opportunity cost is transferred from the consumers of the product to the Government.
The Government funds it from taxpayers, who bear the real cost.

Asked in the GS Paper I of the UPSC Civil Services Preliminary Examination 2018, held on 3 June 2018. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.

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