Opportunity Cost of Government Spending

Steps:

• Identify the decision: Government allocates $100m to wind subsidies over healthcare.
• Recognize trade-off: Funds used for one purpose cannot fund the alternative.
• Link to economics: This shows the cost of forgoing the next best option.
• Match to concept: The forgone healthcare spending is the opportunity cost.

Why D is correct:

• Opportunity cost is the value of the next best alternative forgone, here the $100m in healthcare benefits lost by choosing wind construction.

Why the others are wrong:

• A: External cost involves uncompensated third-party effects, not a spending trade-off.
• B: Free goods have zero cost and unlimited supply, unlike budgeted government funds.
• C: Market disequilibrium is supply-demand imbalance, not a deliberate allocation choice.

Final answer: D