Question map
If a commodity is provided free to the public by the Government, then
Explanation
The opportunity cost of an activity is the value of benefits that have to be given up by using the resources for the chosen activity rather than for something else.[1] When the government provides a commodity free to the public, the opportunity cost does not disappear—it simply shifts to those who fund the government. Governments raise money through taxes and other ways to meet expenses on the services rendered by it.[2] When the government bears part of the cost of providing goods or services, it has to bear some of the cost.[3] Therefore, while consumers receive the commodity free and pay no direct price, the tax-paying public ultimately bears the opportunity cost through the taxes they pay. The resources used to provide the free commodity could have been used for alternative government expenditures, and this cost is borne by taxpayers, not by the direct consumers of the product.
Sources- [1] https://www.fao.org/4/y5424e/y5424e08.htm
- [2] Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 2: SECTORS OF THE INDIAN ECONOMY > SECTORS IN TERMS OF OWNERSHIP: PUBLIC AND PRIVATE SECTORS > p. 32
- [3] Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 2: SECTORS OF THE INDIAN ECONOMY > p. 33
PROVENANCE & STUDY PATTERN
Guest previewThis is a classic 'First Principles' question derived directly from the definition of Opportunity Cost in NCERT Class XII Microeconomics. It tests conceptual clarity over rote memorization—specifically, the economic axiom that 'there is no such thing as a free lunch' (TINSTAAFL).
This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.
- Statement 1: When a commodity is provided free to the public by the government, is the opportunity cost zero?
- Statement 2: When a commodity is provided free to the public by the government, is the opportunity cost ignored?
- Statement 3: When a commodity is provided free to the public by the government, is the opportunity cost transferred from the consumers of the product to the tax-paying public?
- Statement 4: When a commodity is provided free to the public by the government, is the opportunity cost transferred from the consumers of the product to the government?
- Defines opportunity cost as the value of benefits forgone when resources are used for one activity rather than another — implying a non-zero cost when government resources are used.
- Applies that definition directly to government expenditure, showing funds used for one public good mean foregone benefits from alternative uses (e.g., schools or health services).
- Shows that even where government cost reporting may be minimal, the 'value to the industry' is taken as the financial opportunity cost — i.e., an alternative cost exists and can be measured.
- Gives a concrete example (subsidy valued as interest cost) of how opportunity cost is calculated, contradicting the idea that it is zero when the government provides something free.
- Notes that while opportunity cost can be difficult to quantify and sometimes is ignored in practice, that is a methodological choice — not evidence that opportunity cost equals zero.
- Frames opportunity cost as a component of social cost, reinforcing that resources used by government have alternative uses and associated costs.
Explains public goods are non-excludable and government must provide them because private provision fails (free-rider problem).
A student could note that provision requires resources (production/administration) and therefore infer alternatives forgone—so investigate what resources the government uses and their other uses.
Defines public goods as non-rivalrous and non-excludable and states private enterprise will not provide these goods, so government provision is necessary.
Use the definition to identify examples (roads, dams) and check the budgetary cost of supplying them to see what public funds could otherwise finance.
Says governments raise money through taxes to meet expenses on services they provide.
Combine with basic fiscal facts (taxes are limited) to reason that spending on a 'free' commodity uses tax revenue that could be spent elsewhere, implying a non-zero opportunity cost.
Gives examples (roads, bridges, electricity, irrigation) of services where government undertakes heavy spending because private sector won't at reasonable cost.
A student can pick one example, estimate resource inputs (labour, materials) or budget outlays and compare alternative uses to judge the opportunity cost of providing it free.
Discusses price ceilings and market supply behavior, illustrating that market prices (or absence thereof) affect supply decisions.
Extend by examining how making a commodity free (price = 0) would change private supply and require government to fill the gap using resources—suggesting a cost in alternatives forgone.
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