The difference between economic goods and free goods

Topic: The Basic Economic Problem – Economic Goods and Free Goods

Learning Objective

Understand the difference between economic goods and free goods.

Key Concepts

• Economic goods: scarce and have a price.
• Free goods: abundant and have no price.

Definitions

Economic Good – A good that is scarce and has a price. Scarcity creates a trade‑off.

Free Good – A good that is abundant and does not have a price. Its supply exceeds demand.

Examples

• Economic goods: food, clothing, cars.
• Free goods: air, sunshine, sea water.

Comparison Table

Mathematical Illustration

Let \$S\$ be the supply and \$D\$ the demand for a good. For an economic good, \$S < D\$ at the prevailing price \$p\$, leading to a price \$p^* > 0\$ such that \$S(p^*) = D(p^*)\$.

For a free good, \$S \gg D\$ and \$p = 0\$.

Implications for the Basic Economic Problem

1. Scarcity forces choices.
2. Economic goods require allocation.
3. Free goods reduce the need for allocation.

Suggested Diagram