Question 25 from UPSC CSE 2018 - Economy

Question

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

IASCODEX · Accepted Answer

Correct Option: C. the opportunity cost is transferred from the consumers of the product to the tax-paying public

Strategy: - Identify opportunity cost as the value of the next-best alternative foregone, which is not negated by free provision.
- Recognize that "free to the public by the Government" implies costs are borne elsewhere, not eliminated.
- Conclude that the cost burden transfers from direct consumers to the tax-paying public who fund government spending.

Key Info: Opportunity cost is the loss of potential gain from other alternatives when one alternative is chosen. It is a fundamental concept underpinning all resource allocation decisions, including those in public finance.

When the government provides a commodity for free, the direct beneficiaries incur no monetary price. However, the resources utilized (such as funding, labor, and materials) inherently have alternative uses. This cost is not eliminated; rather, it is financed through government resources, primarily taxes collected from the public. Consequently, the opportunity cost shifts from the immediate consumer to society at large, especially the taxpayers who indirectly fund the provision.

In economic analysis, ignoring or assuming zero opportunity cost leads to inefficient allocation of resources. Free government provision often applies to public goods like defense, street lighting, or essential healthcare. Despite this, the resources consumed still represent an economic cost that could have been employed elsewhere. The government, in this instance, acts as a collector and allocator of public funds, collectively bearing the cost on behalf of citizens.

Therefore, in terms of economic incidence, opportunity cost is transferred from consumers to the tax-paying public. This principle aligns with broader economic concepts such as public goods, externalities, and fiscal incidence.

IASCODEX · Answer

Option A: the opportunity cost is zero

IASCODEX · Answer

Option B: the opportunity cost is ignored

IASCODEX · Answer

Option D: the opportunity cost is transferred from the consumers of the product to the Government