UPSC Prelims 2018 Question:

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

Explanation:

• Opportunity cost refers to a benefit that a person could have received, but gave up, to take another course of action. It is the cost of choosing one alternative over another and missing the benefit offered by the forgone opportunity, investing or otherwise.
  
  
• Stated differently, an opportunity cost represents an alternative given up when a decision is made. Opportunity cost is also called economic cost.
  
  
• For example: If more of the scarce resources are used in the production of corn, fewer resources are available for the production of cotton and vice versa. Thus, there is always a cost of having a little more of one good in terms of the amount of the other good that has to be forgone. This is known as the opportunity cost of an additional unit of the goods.
  
  

• As per microeconomics, for free goods such as Air and common goods such as fish / grazing land opportunity cost is zero. While for public goods such as street light and defense, opportunity cost is involved. so, opportunity cost is not zero and it can’t be ignored.
  
  
• Even if a consumer is getting a commodity for free, the opportunity costs is transferred from the consumers of the product to the tax-paying public.
  
  

Therefore, option (3) is the correct answer.

Subject: Economics | Basic Economic Concepts