Free Goods

Abstract

Free goods are ‘goods’, whether consumer goods or productive inputs, which are useful but not scarce; they are in sufficiently abundant supply that all agents can have as much of them as they wish at zero social opportunity costs (cf. ch. 11, §3, of Carl Menger’s Principles of Econonomics, 1871). Goods which have a positive social opportunity cost but a zero price — for example, because there are no property rights in them, or because they are fully subsidized — are not free goods. Any ‘gift of nature’, whether it be a good such as air, or a primary input such as labour or land (in the narrow sense), might be a free good under certain circumstances. But a produced commodity can be a free good, other than in the market period, only if it is a joint product. As is at once obvious from the example of air, the free nature of a good is not an intrinsic property; thus air above the earth’s surface is, in most circumstances, a free good but air under water or in deep mines is not. More abstractly, then, a free good is a good for which supply is not less than demand at a zero price (in the sense of social opportunity cost). But since both supply of and demand for any good depend on the prices of all goods, it is clear that whether a particular good is or is not a free good is a general equilibrium, not a partial equilibrium, issue.