The government builds flood-control embankments along a river that protect all the villages nearby, whether or not the villagers pay anything. Through which function of the budget is the government acting?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Allocation function
Embankments protect every village nearby, and no one can be kept out of the benefit. They are a public good, which the market will not provide. Providing such goods through the budget is the allocation function.
The embankments are not about fair income shares (redistribution) or ups and downs of demand (stabilisation).
NCERT (2026-27): “Allocation Function of Government Budget Government provides certain goods and services which cannot be provided by the market mechanism i.e. by exchange between individual consumers and producers. Examples of such goods are national defence, roads, government administration etc. which are referred to as public goods. … However, in case of public goods, there is no feasible way of excluding anyone from enjoying the benefits of the good. That is why public goods are called non-excludable. Even if some users do not pay, it is difficult and sometimes impossible to collect fees for the public good. These non-paying users are known as ‘free-riders’. Consumers will not voluntarily pay for what they can get for free and for which there is no exclusive title to the property being enjoyed. The link between the producer and consumer which occurs through the payment process is broken and the government must step in to provide for such goods.” |