Question

How does incentive relate to the idea of Free Lunch? Milton Friedman said there's no such thing as free lunch and he also talks about giving people the incentive to chose. I just can't understand what that has to do with the concept of no free lunch. Please provide a detailed response with examples. Thank you :)

Answer 1

TINSTAAFL - there is no such thing as a free lunch states that relationship of cost of consumption and decision-making; and conveys that there is no such thing as a free lunch because it always have a cost and utilizes up resources to provide it. Thus a consumer must make wiser decisions by considering all direct as well as indirect costs and externalities. He describes it with opportunity cost wherein the making of decision requires trade-offs and makes an assumption that there are no real free offerings in society. The opportunity cost refers to value of the next highest valued alternative resource usage.

For example: If a company offers the slice of pizza free of cost, then it is not "free" then people standing in line for some minutes and there is an opportunity cost to it such as leisure time, hang out with friends, music and entertainment. Moreover there is money invested into buying the pizza ingredients. Thus there is no such thing as "free lunches" because a value is always added to it because there is alternative cost of waiting in line i.e. opportunity cost