Friday, October 12, 2012

Please explain in economic terms the saying "there is no such thing as a free lunch."

The idea that there is no such thing as a free lunch is an illustration of a couple of the basic ideas of economics -- that of scarcity, and that of opportunity cost.


The idea of scarcity says that every resource on earth is limited in comparison to people's unlimited desires.  Therefore, everything has a price because people have to compete for resources. So even if they say the lunch is free, it isn't because everything has a price.


The other, and connected, idea is that of opportunity cost.  Whenever you choose to do something, you give up the ability to do something else at the same time.  So, if someone uses grain to feed cows to make the hamburger for your free lunch, they lost the opportunity to use that grain for something else.  And that's another cost of the lunch.

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