Economic goods

Economic goods are those that use resources and therefore have a non-zero opportunity cost. Unlike free goods, economic goods are not abundant due to the scarce nature of the resources used to produce them. These resources can either be found in nature, such as oil or gold, or produced using scarce resources. This scarcity in relation to demand characterizes economic goods.

The majority of goods and services are economic goods. For instance, the computer or device used to access this website is an economic good because it required resources, such as the metals used in its components and the labour used in its assembly. Even intangible goods, such as music or art, are considered economic goods because they require human effort for their creation.

Free goods

In contrast, a free good is a good that is both non-rival and non-excludable. This means that the consumption of a free good by one individual does not reduce the availability of the good for others, and it is impossible to exclude individuals from using the good. Free goods are also characterized by their abundance, as they require no resource usage for their production or provision.

Examples of free goods include air and sunlight. Because air and sunlight are available in abundant quantities and can be used by anyone without reducing their availability for others, they are considered free goods. Information is also sometimes considered a free good because, once it is produced, it can be shared with others without reducing its availability. Additionally, it is impossible to exclude individuals from accessing information once it has been produced.

Author Profile

Luke Watson

Luke Watson has a BSc (Hons) in international business and economics. He is currently working as an IBDP economics teacher at Shanghai United International School in China.