Consider the following statements about the allocation function of the government budget:
(A) Under this function, the government provides certain goods and services which cannot be provided by the market mechanism.
(B) In the case of private goods, one person’s consumption stands in a rival relationship to the consumption of others.
(C) Public goods are non-rivalrous, which means that one person’s use reduces the amount left for others.
(D) Users of a public good who do not pay for it are known as free-riders.
(E) Public goods must be produced directly by the government.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → (A), (B) and (D) only
(A) Under this function, the government provides certain goods and services which cannot be provided by the market mechanism. — Correct. This is the allocation function.
(B) In the case of private goods, one person’s consumption stands in a rival relationship to the consumption of others. — Correct. A chocolate one person eats is not available to others.
(C) Public goods are non-rivalrous, which means that one person’s use reduces the amount left for others. — Incorrect. Non-rivalrous means one person’s use does not reduce what is left for others.
(D) Users of a public good who do not pay for it are known as free-riders. — Correct. Non-paying users are free-riders.
(E) Public goods must be produced directly by the government. — Incorrect. They may be produced by the government or the private sector; the budget only has to finance them.
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. … One, the benefits of public goods are available to all and are not only restricted to one particular consumer. For example, if a person eats a chocolate or wears a shirt, these will not be available to others. It is said that this person’s consumption stands in rival relationship to the consumption of others. However, if we consider a public park or measures to reduce air pollution, the benefits will be available to all. One person’s consumption of a good does not reduce the amount available for consumption for others and so several people can enjoy the benefits, that is, the consumption of many people is not ‘rivalrous’. Two, in case of private goods anyone who does not pay for the goods can be excluded from enjoying its benefits. If you do not buy a ticket, you will not be allowed to watch a movie at a local cinema hall. 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’. … There is, however, a difference between public provision and public production. Public provision means that they are financed through the budget and can be used without any direct payment. Public goods may be produced by the government or the private sector. When goods are produced directly by the government it is called public production.” |