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Economics goods and free goods

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Economics goods and free goods

What is an economic good?

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Economic goods are items or services that have a benefit to society but require the use of scarce resources to produce. Because these resources are limited and can be used in other ways, economic goods have an opportunity cost, meaning that producing one thing means giving up the opportunity to produce something else. People are willing to pay for economic goods, which means they carry a price and can be traded in the market.

What is a free good?

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Free goods are items that are abundant in supply and do not require the use of scarce resources to produce. They are available in such large quantities that consuming them does not reduce their availability to others. Free goods are plentiful, therefore, they do not have an opportunity cost, do not carry a price, and cannot be traded in the market.

Summary Table of Economic Goods vs Free Goods

Economic good	Free good
Requires scarce resources to produce it	Is abundant in supply
Production has an opportunity cost	Production does not deplete scarce resources
Carries a price	Does not command a price
For example a car	For example air

Use of scarce resources vs. abundantly supplied

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Economic goods require limited resources that have alternative uses. For example, producing a car requires steel, rubber, and labour, all of which are limited and could be used for other purposes.

Free goods are available in large quantities and don't require scarce resources for their use. Air, for example, is abundant in supply and we can breathe it without it running out.

Production has an opportunity cost vs. production does not deplete scarce resources

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When we produce an economic good, we have to give up something else. For example, if we use steel to make a car, we can't use that same steel to build a bridge. This trade-off is called an opportunity cost.

Free goods do not require sacrificing other resources. When you breathe air, you do not prevent others from doing the same, and it doesn't use up any other limited resources.

Carries a price vs. does not command a price

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Economic goods have a price because they are limited and desirable. The price is a way to ration these goods. For instance, cars are sold for money because not everyone can have one for free.

Free goods don't have a price because they are not limited. Since there is plenty of air for everyone, nobody needs to pay for it.

Examples

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A car is an economic good because it uses limited resources, has an opportunity cost, and costs money to buy.

Air is a free good because it is abundant in supply, does not have an opportunity cost, and is free for everyone to use.

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Can you think of any more examples of Economic Goods?

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Can you think of any more examples of Free Goods?

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NOTE: Public goods such as street lighting and healthcare are free at the point of use but that doesn’t make them “free goods”. This is because public goods are not free to society because we pay for them indirectly through taxes.

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Food for thought: is water actually a “free good”?

It seems like it is everywhere, right? Well, a free good is something that's available without any limits or costs. At first, water might seem like that, but in some places, there's not enough of it. For example, in dry areas where there's not much rain, water becomes scarce. This means it's not always easy to get, and we might need to put a lot of effort and resources into making sure everyone has enough to drink. So, even though water seems abundant in supply, it is not always free or unlimited. This is sometimes known as a “common good”.