The Scarcity Problem

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

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

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

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.