Definition of a free good

Canal Gargrave
Is water a free good?

A free good is a good with zero opportunity cost. This means it can be produced by society in as much quantities as needed with little or zero effort.

Examples of Free Good

  • Air. Oxygen is something we need and we can simply breathe it in. There is no element of rivalry (e.g. if I breathe, there is still enough air for you to breath too.
  • Water. In many environments water will be a free good, e.g. if you live next to a river a small community can easily take as much water as it wants with very little effort. However, water could become an economic good in dry environments. In desert areas, water is not in plentiful supply and society has to devote many resources to the production of drinking water. Therefore, water becomes scarce and so it is no longer considered a free good. These are sometimes known as a ‘common good’ as it is freely available to all but at a certain point there is limited supply.
  • Intellectual ideas. If you develop a new invention and don’t patent it (e.g. steam engine, cure for cold) anybody can reuse this idea without any opportunity cost.
  • By Products. If heat is generated from a recycling plant, this creates a good – heat at no opportunity cost.

When is a free good not a free good?

One important distinction is that just because a good is given away for ‘free’ it doesn’t necessarily mean it is a free good.

If a firm gave away a ‘free’ toy in a box of cornflakes, it is not actually free because it requires time to make and raw materials. This means, there is an economic cost. If the company wasn’t giving away ‘free’ toys, it could reduce the price of the cornflakes.

Also, in the case of river in a water, there may come a critical mass, where there does start to be an opportunity cost of taking water from a river. With a low population, the water is renewable. But, a high population density city may mean more water is taken from river than can be replenished. Therefore, at certain population densities, it loses its status as free – because there starts to be an opportunity cost.

Is Statistics a free good?

Is the creation of economic statistics a free good? You could argue that economic statistics can easily be produced with little effort. However, I would argue there is an opportunity cost to create high quality economic statistics. You need to spend time and have a certain knowledge to be able to present them. The ONS will spend considerable time and effort in collecting statistics and displaying them.  e.g. UK economy 2011

Using Statistics

You could argue the internet has made finding and using economic statistics much easier. A quick google search gives you information very quickly. There is little opportunity cost involved in finding it and it is available to everyone with internet access. However, to find exactly what you want may take much longer. Certainly the internet has made information more of a free good. But, there is still room for debate.

  • An economic good is a good with an opportunity cost. e.g. takes time and resources to produce.
  • Note: A good may be free at the point of use, but not classed as a ‘free good’ ! For example, to visit the doctor is ‘free’ for people in the UK. However, we have to pay the doctor through taxes. Therefore health care is not an example of a free good. If we devote resources to health care there is definitely an opportunity cost.

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