The examine of business economics is built on the structure of 3 incredibly necessary concepts: scarcity, option, and also possibility price. In this episode of the Economic Lowdvery own video series, economic education Coordinator Scott Wolla supplies these 3 concepts to explain why tbelow is no such thing as a free lunch.

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Below is a full transcript of this video. It has actually not been edited or reregarded for accuracy or readcapability.

Imagine that the friendly neighborhood pizza restaurant erected a table full of pizzas external your institution about lunchtime and put up a sign that said “Pizza and also Soda - $0.00.” Wouldn"t this be a totally free lunch? In this episode of the Economic Lowdvery own we’ll uncover out if tbelow is such a point as a totally free lunch.

Lesson #1: Scarcity

The research of economics begins via the principle of scarcity. Scarcity explains the condition in which our desires are better than the sources available to fulfill those desires. We face the trouble of scarcity eincredibly day whether we think about it or not. It can be nice to dream about a people without scarcity, yet the sad reality is that the points we want are scarce because the sources essential to create them are scarce. If you desire a brand-new skateboard, it takes lumber, tools, and also labor (all of which are resources) to develop that skateboard. The world who very own the wood, the tools, and also the labor desire something in return for the use of their sources because their resources could have actually been supplied in various other methods. If the hardwood were not supplied for skateboards, it can be offered to develop home windows or baseball bats. So, the initially leskid is scarcity, which claims that culture does not have sufficient resources to create all the items and also solutions that world want.

Leschild #2: Choice

This condition of restricted resources to satisfy limitless desires means that we must constantly make choices about which of our wants to meet. For instance, bereason time is scarce you must select whether you will certainly sleep amethod the morning or go to institution. You have to select whether to spfinish or conserve your allowance. Scarcity prohibits you from saving and spfinishing the very same dollar; you have to choose. If you decide to spfinish it, you may choose whether to buy a video clip game or a DVD of your favorite movie. Tough alternative, huh? (This is Scott talking directly to the character). If you choose to save your allowance, will certainly you save it for a auto or for college? On a broader level, scarcity pressures culture to select exactly how to usage resources, too. Will a piece of land be provided for a park or for housing? Will tax dollars be supplied for healthtreatment or for education?

Lesson #3: Opportunity Cost

When human being make choices they incur a expense. If you choose to buy a video clip game rather of a movie, tbelow is a cost--not the price you pay for the video game, but chance price. Economists define an possibility price as the many highly valued opportunity provided up once you make a choice. So the opportunity expense of buying the video game is that you cannot buy the DVD. The opportunity price is the chance lost. The chance price of spfinishing money is the shed opportunity to save the money. For society, the possibility price of making use of land for a park is the housing provided up. The chance price of spfinishing tax earnings on healthtreatment is the shed possibility to spend that same money on education and learning. Keep in mind that the opportunity price is the most highly valued opportunity offered up. Think about this: When your alarm went off this morning, you had actually a number of options open to you. Assuming you first determined to get out of bed, you can have actually liked to go to college, watch TV, or go to the mall. Now, what is the possibility price of going to school? Is it both watching TV and going to the mall? No. Because of the scarcity trouble, you would have just been able to execute among those choices if you weren’t at school, so you are only providing up the opportunity to do among them, even more specifically the one you were the majority of most likely to carry out. So, if you were to location a worth on your options you would choose the task you valued a lot of, which was go to college, your opportunity cost would be the one on which you placed the next highest value—probably watching television.

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Leskid #4: There is no cost-free lunch.

This brings us to our last leskid. Nobel Laureate Milton Friedman was fond of saying, “There is no such point as a cost-free lunch.” You’ve now come up on the pizza stand also offering pizza and also soda for $0.00. Wouldn’t this be a complimentary lunch? You didn’t pay a price for the pizza bereason the price was zero. So, it might not have cost you in terms of money, yet remember: any kind of time you make an option, tright here is a cost—an possibility cost. With his famed quote, Milton Friedman reminds us of the lessons we have learned today: Because of scarcity we must select, and also alternative suggests that tright here is an chance expense. So, the factor tbelow is no complimentary lunch is that your choice to eat pizza out on the sidewalk in front of your school suggests that you are offering up the chance to dine in other places, for instance eating in the ---

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