Government subsidies crowd out private provision

Steps:

• Government removes fees for public and private higher education, making it free for students.
• Private providers lose revenue from tuition fees, their primary income source.
• Without fees, private sector cannot cover costs or earn profits.
• Public sector dominates, reducing private incentives to operate.

Why A is correct:

• Private sector operates on profit motive; free provision eliminates revenue, per basic market incentives in economics.

Why the others are wrong:

• B: Zero fees remove price signals, so allocation shifts to queues or government rationing, not price mechanism.
• C: Demand at zero price is elastic but not perfectly so, as limits like capacity and student preferences constrain it.
• D: Opportunity cost includes time and foregone earnings, which remain positive despite zero fees.

Final answer: A