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June 25, 2018 

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DEPOSIT: A bank account maintained by a bank on behalf of a customer. In a fractional-reserve banking system, one of the primary functions of a bank is to keep customer deposits safe. Banks offer a wide range of deposits, including checkable (or transactions) deposits, savings deposits, certificates of deposit, and money market accounts. Such deposits represent a sizable portion of the M1 money supply and as well as broader monetary aggregates -- M2 and M3. They also constitute the bulk of the liabilities of a typically bank.

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FREE LUNCH:

The consumption of hunger-satisfying food products during the middle of the day, usually around the noon hour, the acquisition of which requires no payment by the consumer and presumably imposes no opportunity cost on society. The food is lunch, the acquisition is free, hence free lunch.
The prospect of obtaining a "free lunch" serves to illustrate important economic notions, especially scarcity and opportunity cost. The key question posed by this phrase is whether or not lunch can in fact be free. In some situations, a hungry consumer is able to acquire noon-time food products that satisfy hunger needs without a monetary payment. The impetus of the phrase "free lunch" harkens back to a period in American history when bars, saloons, and other similar establishments sought to attract customers with the promotion of a "free lunch." As such, the lunch appears to be free. But is it?

The Scarcity Problem

To begin, ponder the fundamental problem of scarcity. Scarcity exists due to limited resources and unlimited wants and needs. In other words, society has insufficient resources to produce everything that everyone wants and needs. Moreover, it means that resources used to produce one good cannot be used to produce another. The resources used to produce an apparently free lunch, cannot be used to produce other goods.

Suppose, for example, that Duncan Thurly receives a "free" Deluxe Club Sandwich from Manny Mustard's House of Sandwich. The word "free" is in quotation marks to indicated that Duncan does not make a monetary payment. But is it free to society?

The resources used to prepare Duncan Thurly's Deluxe Club Sandwich cannot be used to pursue other activities, such as preparing dinner for Pollyanna Pumpernickel, or mowing Jonathan McJohnson's front yard, or making Winston Smythe Kennsington III an automobile, or producing an episode of the popular television show Brace Brickhead: Medical Detective, or paying Admiral Pluckingstick to defend the nation from enemy invasion, or... and the list goes on. Scarcity means other members of society must do without the satisfaction of their wants and needs.

Opportunity Cost

Scarcity means that the production of hunger-satisfying food products served on or around the noon-hour imposes an opportunity cost on someone. When a hungry consumer makes payment for the food products, then the hungry consumer incurs the opportunity cost. However, if the hungry consumer does not make payment and does not incur the cost, someone else does, someone else foregoes satisfaction to provide the lunch.

Consider the opportunity cost of Duncan Thurly's Deluxe Club Sandwich. The most likely candidate to incur the opportunity cost is Manny Mustard, the proprietor of Manny Mustard's House of Sandwich. If Manny Mustard does not collect payment from Duncan Thurly, but does pay the expense of acquiring the resources needed to purchase the Deluxe Club Sandwich, then Manny is incurring the opportunity cost of this lunch. Lunch is not free from Manny's viewpoint.

Perhaps Manny is compensated for the expense of acquiring the sandwich-making resources from a third party. For example, the Shady Valley city government, under the direction of Mayor Victor Thurgood, might have a program in place that subsidizes the provision of hunger-satisfying food products served on or around the noon-hour to hungry consumers such as Duncan Thurly. In other words, the city pays for lunch with tax dollars. In this case, the tax dollars cannot be used by the tax-paying citizens of Shady Valley for other purposes. The citizens of Shady Valley are incurring the opportunity cost of this lunch. Lunch is not free from their viewpoint.

There Ain't No Such Thing As A Free Lunch

Given the fundamental problem of scarcity, the acquisition of hunger-satisfying food products without imposing an opportunity cost on others seldom, if ever, occurs. In other words, "there ain't no such thing as a free lunch." While the person consuming the hunger-satisfying food products might not forego a monetary payment, the rest of society foregoes alternative goods that could have been produced with the resources used to prepare the hunger-satisfying food products.

The phrase "there ain't no such thing as a free lunch" is popularly promoted by economists to illustrate opportunity cost and the problem of scarcity. While its wording might be frowned on by the grammatically correct, it does point out that society cannot get something for nothing; that producing one thing means society cannot produce something else.

Important Exceptions

While the phrase "there ain't no such thing as a free lunch" captures the essence of scarcity and opportunity cost, it is not without qualification. Even in a world full of scarcity and lunches that are not really "free," a few activities actually are "free."

A "free" good exists if its production and consumption do not impose an opportunity cost on others. The best example is air. Air is free most of the time. Breathing air by one person does not impose an opportunity cost on others. If, for example, Duncan Thurly takes a breath of air, then Pollyanna Pumpernickel, Jonathan McJohnson, Manny Mustard, and everyone else is not prevented from also taking a breath of air.

This, of course, does not apply if Duncan, Paula, Jonathan, and Manny happen to be trapped in an airtight vault that cannot be opened for twenty-four hours. In this case, every breath Duncan takes imposes an opportunity cost on the others.

<= FREE GOODFREE RESOURCE =>


Recommended Citation:

FREE LUNCH, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2018. [Accessed: June 25, 2018].


Check Out These Related Terms...

     | free good | free resource | scarce good | scarce resource | scarce |


Or For A Little Background...

     | scarcity | opportunity cost | limited resources | unlimited wants and needs | resources | satisfaction | first rule of scarcity |


And For Further Study...

     | three questions of allocation | economic thinking | dismal science | economics | seven economic rules | production | Star Trek |


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