If a commodity is provided free to the public by the Government, then
[UPSC Civil Services Exam – 2018 Prelims]
(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.
- Opportunity cost refers to the value or benefits that are foregone when a business owner, individual, or investor chooses one option over another. It represents the missed opportunities that arise from selecting a particular alternative.
- In the case where the government provides a commodity free of charge to the public, the opportunity cost is shifted from the consumers of the product to the tax-paying public. This means that the cost or sacrifice is borne collectively by the public through taxes.
- According to microeconomics, goods that are freely available, such as air, and common goods like fish or grazing land, have a zero opportunity cost since they do ot involve a trade-off in terms of resources or monetary value.
- However, for public goods like street lights and defense, there is an opportunity cost involved. This means that the government could have allocated the funds spent on the military to street lights, indicating that there is a sacrificed alternative or cost associated with the chosen allocation of resources. Therefore, the opportunity cost for public goods is not zero.