An idea that's
absolutely central to economics is the idea that 'There is no such thing as a
free lunch'. One of the aims of this maxim is to warn overly-idealist people
that when something is offered for free, it almost always means that someone else
has to pick up the cost. A good example is the foolishness behind some people's
wish for there to be 'free' university education - they seem wilfully oblivious
to the fact that the cost of a 'free' education must be picked up somewhere.
Strictly speaking, judging
by the letter, the long-standing 'There is no such
thing as a free lunch' maxim applies broadly throughout economics. Even on
those rare occasions when you can acquire something that's totally free to you
and of no cost to the provider, there is almost always an opportunity cost
somewhere, even if it's simply something else you didn't do whilst enjoying
your freebie.
While all
that's true, it is possible to identify something in the economy that could
aptly be classified as a free lunch - it occurs every time there is consumer
surplus and producer surplus - that is, when there is a personal gain beyond
the cost of something. When you would buy a cinema ticket for a cost of £10 but
the gross benefit to you is £15 worth of pleasure, the £5 of consumer surplus
is the free lunch in the equation* (the same applies the other way round with
the provider's producer surplus).
(*If you want
to quibble, the opportunity cost of not enjoying alternative consumer surpluses
instead of the cinema trip's consumer surplus can be factored into the
equation, but there's no real need to do so, particularly if one makes the
assumption that usually activities with the most consumer surplus are the ones
we'd most frequently choose anyway).
The economic
growth and increased prosperity we enjoy in society is made up of billions of
these free lunches. They are where value is created, and all of those consumer
surpluses and producer surpluses from which we benefit - they are the things in
the economy that could pass a free lunches.
