Q.Explain the differences between free goods and economic goods.
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Start your 14-day free trial to unlock the full solution →Free goods are nature's gifts available in unlimited supply, so they have no price and no cost of production (air, sunlight, water in rivers); they are not scarce and do not create any economic problem. Economic goods are scarce in relation to their demand, so they command a price, require human effort and cost to produce, and are the subject matter of economics. The key differences are in supply, price, cost, scarcity and ownership.
Meaning
Free Goods are those goods that are supplied by nature free of cost and are available in unlimited quantity, such as air, sunshine, and water in a flowing river. Because supply exceeds demand, they have no price.
Economic Goods are those goods that are scarce in relation to their demand and can be obtained only by paying a price and by human effort, such as food, clothing, furniture and machines.
Differences
- Supply: Free goods have unlimited supply; economic goods are limited/scarce.
- Price: Free goods have no price; economic goods command a price.
- Cost: Free goods involve no cost of production; economic goods involve cost and human effort.
- Scarcity: Free goods are not scarce; economic goods are scarce relative to demand.
- Ownership/Transferability: Free goods generally cannot be owned or sold; economic goods can be owned, bought and sold.
- Economic problem: Free goods create no economic problem; economic goods give rise to the central problem of scarcity and choice. …
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