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In: Economics

"There is no such a thing as a 'free lunch' in economics…and (if there is) it...

"There is no such a thing as a 'free lunch' in economics…and (if there is) it should be shared." -- Milton Friedman. In good detail. How does this idea relate to deciding on whether or not Government should play a role in either, Equity vs. Efficiency market interference from what you have learned in our class?

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Expert Solution

Its the economic theory, and also the lay opinion, that whatever goods and services are provided, they must be paid for by someone - that is, you don't get something for nothing. For example, a lottery winner may get a a car for free, but it is actually coming from the bulk sale of lottery tickets, hence, it is not free, if it is, it has been shared.

Similarly, government programmes with free mid-day meal, free health care for all are not actually free. Money for them are coming from the taxpayer's money. Hnece, a governemnt has to decide on equity vs. efficiency when deciding any programmes.

Equity says all people - rich or poor should have access to same facilities, but efficiency says each person gets facilities according to the marginal utility he equalised while spending on different items. Hence, government may want equity in order to promote social welfare while market will derive and work on efficiency.


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