An island community has a naturally occurring, abundant freshwater spring that flows continuously, far exceeding any possible consumption needs of the population without requiring any purification or infrastructure. To meet expanding agricultural demands, the community decides to construct a desalination plant to process seawater.
Which of the following statements correctly classifies these resources according to economic theory?
Both the spring water and the desalinated water are free goods because they are essential for survival and provided to citizens at zero price.
The spring water is a free good because its consumption involves zero opportunity cost, whereas the desalinated water is an economic good because scarce resources must be sacrificed to produce it.
The spring water is a public good because it is non-rivalrous, while the desalinated water is a merit good because it generates positive externalities.
The desalinated water is a free good because seawater is infinitely abundant, whereas the spring water is an economic good because its geographic source is fixed in location.
