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
Full viewThis 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.
- Defines opportunity cost as the gain foregone from the second best activity — establishes the concept that choices have foregone alternatives.
- By giving the formal definition, it implies that any allocation (including free provision) involves foregoing other uses of resources.
- Describes inputs being provided free by the government (Green Revolution) and explicitly states such government support is 'not sustainable'.
- Implied trade-off: providing things free imposes costs on the government that cannot be sustained indefinitely.
- Notes governments must undertake heavy spending to provide services and that collecting money from users is difficult.
- Shows that providing services free requires government expenditure (hence resources are used and alternatives forgone).
- Describes public goods as non-excludable and highlights the free‑rider problem, explaining why consumers will not voluntarily pay for such goods.
- States that the government must step in to provide these goods, implying private purchasers do not bear the cost when provision is public.
- Defines public goods as non-rivalrous and non-excludable and explicitly says private enterprise will generally not provide these goods.
- Concludes that such goods 'must be provided by the government', supporting the idea that provision and associated costs shift to the public sector.
- States governments raise money through taxes to meet expenses on services rendered by it, linking government provision to taxation finance.
- Implies that when government supplies services, the funding (and thus the cost) is recovered from taxpayers rather than direct consumers.
- Explicitly defines 'consumer subsidy' as the difference between government economic cost and issue price and states this subsidy is 'borne by the central government'.
- Shows a clear budgetary transfer of cost from consumers (lower prices) to the government (procurement, storage, distribution costs).
- States government supplies goods (electricity, rationed food) at affordable/lower rates and 'has to bear part of the cost'.
- Illustrates government payment replacing the higher private/market price that consumers would otherwise pay.
- Notes that subsidies may be granted by the government on prices of some commodities, implying costs are taken onto government accounts rather than consumers.
- Links price interventions (subsidies) to government fiscal incidence.
- [THE VERDICT]: Sitter. Directly solvable using NCERT Class XII Microeconomics (Chapter 1: Introduction) definition of Opportunity Cost.
- [THE CONCEPTUAL TRIGGER]: Basic Economic Concepts > Opportunity Cost & Scarcity.
- [THE HORIZONTAL EXPANSION]: Master these related cost concepts: 1) Sunk Cost (irretrievable, ignore in decision making), 2) Marginal Cost (cost of one extra unit), 3) Social Cost (Private Cost + Negative Externalities), 4) Implicit vs. Explicit Cost, 5) Public Goods (Non-excludable, Non-rivalrous) vs. Common Goods (Non-excludable, Rivalrous).
- [THE STRATEGIC METACOGNITION]: When reading economic definitions, apply the 'Who Pays?' test. The government is an intermediary, not a generator of wealth. Therefore, 'Government pays' mathematically equals 'Taxpayer pays'.
References describe public goods as non-excludable and collectively consumed, explaining why governments provide them.
High-yield for UPSC economics and public policy: explains market failure and the rationale for state provision. Connects to topics on role of government, welfare economics, and policy design; useful for questions on why private markets may under-provide certain goods.
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Allocation Function of Government Budget > p. 67
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Debt > p. 81
Evidence highlights free-riders and difficulty of charging users, which motivates government intervention to supply such commodities.
Important for analysing public policy choices and social justice arguments. Links to welfare, redistribution, and debates on public vs private provision; enables answers on when and why the state must step in.
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Allocation Function of Government Budget > p. 67
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 2: SECTORS OF THE INDIAN ECONOMY > p. 33
References state governments raise money via taxes and undertake heavy spending to provide services, implying resource costs even when services are 'free' to users.
Crucial for questions on public finance and budgeting: shows that 'free' public provision has fiscal implications and trade-offs (opportunity costs). Helps frame answers on budget priorities, taxation, and the economic cost of public programs.
- 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
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Debt > p. 81
The statement hinges on whether 'free' provision eliminates the gain foregone from the next best use of resources — the core of opportunity cost.
High-yield for UPSC economics: understanding opportunity cost allows candidates to evaluate policy trade-offs (subsidies, freebies, public spending). It links to public finance, resource allocation and cost-benefit arguments and helps answer questions on sustainability and prioritisation of government spending.
- Microeconomics (NCERT class XII 2025 ed.) > Chapter 4: The Theory of the Firm under Perfect Competition > Opportunity cost > p. 61
Government often provides non-excludable goods free; recognizing this category explains why free provision occurs and why fees may not be collected.
Important for UPSC: explains rationale for state provision, implications for budgeting and failures of private markets. Connects to public finance, allocation function of government and policy design for goods like roads, irrigation and defence.
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Allocation Function of Government Budget > p. 67
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Debt > p. 81
References show governments bear real costs when supplying goods free (e.g., free inputs, heavy spending), leading to sustainability concerns.
Crucial for questions on fiscal policy and public finance — helps evaluate long-term viability of freebies, off‑budget liabilities and trade-offs in resource allocation. Enables answers on why 'free' provision may still impose opportunity costs on the state and economy.
- Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 10: Agriculture - Part I > The following are the salient features of the Model Contract Farming Act 2018: > p. 319
- Understanding Economic Development. Class X . NCERT(Revised ed 2025) > Chapter 2: SECTORS OF THE INDIAN ECONOMY > p. 33
- Indian Economy, Nitin Singhania .(ed 2nd 2021-22) > Chapter 5: Indian Tax Structure and Public Finance > Off-budget Liabilities > p. 117
References explain that public goods cannot exclude users and lead to free‑riding, which is why governments provide them rather than market producers.
High‑yield for UPSC economics: explains rationale for government intervention, links to public policy questions on provision of goods/services, fiscal choices and welfare. Mastering this helps answer questions on why some goods are publicly provided and the limits of market provision.
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Allocation Function of Government Budget > p. 67
- Macroeconomics (NCERT class XII 2025 ed.) > Chapter 5: Government Budget and the Economy > Debt > p. 81
Production Possibility Frontier (PPF): This is the graphical representation of Opportunity Cost found in the same NCERT chapter. A shift along the PPF curve shows the trade-off (opportunity cost) between two goods. Expect a question on why the PPF is concave to the origin (increasing marginal opportunity cost).
Use the 'TINSTAAFL' Rule (There Is No Such Thing As A Free Lunch). Option A (Zero) is impossible in economics. Option B (Ignored) is unscientific. Between C and D: The Government is a pass-through entity for public funds. The ultimate source of funds is the taxpayer. Therefore, the cost settles on the Taxpayer (C), not the Government entity (D).
Mains GS-3 (Government Budgeting) & GS-2 (Governance): This concept is the bedrock of the 'Freebies vs. Welfare' (Revdi Culture) debate. Arguments against free electricity or bus rides rely entirely on the 'Opportunity Cost' logic—money spent here is money NOT spent on capex/infrastructure.