UPSC Prelims 2018 Q47: Indian Economy – National Income & Economic Growth
- (a) the opportunity cost is zero.
- (b) the opportunity cost is ignored.
- (c) the opportunity cost is transferred from the consumers of the product to the tax - paying public.
- (d) the opportunity cost is transferred from the consumers of the product to the Government.
Answer: (c) the opportunity cost is transferred from the consumers of the product to the tax - paying public.
Explanation
Opportunity Cost of Free Public Provision
Opportunity cost = value of the next-best alternative foregone. Even when a good is provided 'free' to consumers, resources used to produce/provide it have alternative uses - so the opportunity cost is NEVER zero.
| Option | Correct? | Detail |
|---|---|---|
| (a) Opportunity cost is zero | NO | There is no free lunch; resources have alternative uses. |
| (b) Opportunity cost is ignored | NO | Even if ignored, it still exists economically. |
| (c) Opportunity cost is transferred from consumers to the tax-paying public | YES | When Government provides a good free, it uses taxpayer funds to produce/procure it. The cost is thus shifted from the direct consumer (who pays nothing) to the general tax-paying public who fund the government's budget. |
| (d) Opportunity cost is transferred from consumers to the Government | NO | Government is only a channel; the ultimate resource cost falls on taxpayers, not the government abstract. |
Answer: (c) The opportunity cost is transferred from the consumers of the product to the tax-paying public.
Answer: (c) the opportunity cost is transferred from the consumers of the product to the tax - paying public.
Why each option is right or wrong
- (a) Incorrect. Opportunity cost is a real economic concept - it never becomes zero simply because payment is not made at the point of consumption.
- (b) Incorrect. Whether it is ignored or not is a policy question; the economic cost still exists.
- (c) CORRECT. Free public provision transfers the opportunity cost from consumers to taxpayers who fund the government's expenditure.
- (d) Incorrect. The Government is only the intermediary; the ultimate burden falls on taxpayers, not the abstract government.
Key point
No free lunch principle. Public provision shifts costs from users to taxpayers. Progressive taxation may make this redistribution equitable; regressive funding makes it inequitable. Every 'free' good has a real opportunity cost.
Remember
When a commodity is provided free to the public by the Government, the opportunity cost is not zero - it is transferred from the direct consumers of the product to the tax-paying public who fund the government's budget. Resources used for the free good could have been used elsewhere, and taxpayers ultimately bear that foregone alternative.
Common mistakes
- Believing 'free' means costless - it only means users don't pay at point of use; society bears cost through taxes.
- Confusing government spending with money creation - governments largely finance from taxes, so opportunity cost lands on taxpayers.
- Missing the equity dimension - if funded through progressive taxes, redistribution is progressive; if through regressive taxes, it may be regressive.
Exam tip
Economic maxim (Milton Friedman): 'There ain't no such thing as a free lunch.' Every 'free' benefit has an opportunity cost - the question is only who bears it (users, taxpayers, future generations via debt).
Sources
- NCERT Class 12 - Introductory Microeconomics (Chapter 1: Basic Concepts)
- N. Gregory Mankiw - Principles of Economics (Chapter on Opportunity Cost)