An old song lyric maintains that the best thing in life are
free. A moment’s thought reveals a long list of good that the songwriter could
have had in mind. Nature provides some of them such as rivers mountains beaches
parks and parades. In each case people do not pay a fee when they choose to
enjoy the benefit of the good.
Free good provide a special challenge for economic analysis.
Most goods in our economy are allocated in markets where buyers pay for what
they receive and sellers are paid for what they provide. For these goods prices
are the signals that guide the decisions of buyers and sellers and these
decisions lead to an efficient allocation of resources. When goods are
available free of charge how ever the market forces that normally allocate
resources in our economy are absent.
When a goods does not have a price attached to it private
markets cannot ensure that the good is produced and consumed in the proper
amounts. In such cases government policy can potentially remedy the market
failure and raise economic well-being.
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