Budget Fiscal Policy

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

  1. the opportunity cost is zero.
  2. the opportunity cost is ignored.
  3. the opportunity cost is transferred from the consumers of the product to the tax-paying public.
  4. the opportunity cost is transferred from the consumers of the product to the Government.

Answer

Opportunity cost is the cost which could have been earned from second best investment option. For free goods, the opportunity cost is zero for the person consuming it, however, it is not so for the provider of that good.

The choice of spending on various alternatives is available with government and not tax payers. Thus, it is transferred to the government.

The correct option is D.