Suppose a gasoline station offers the following promotion on the 4th of July: "TODAY ONLY: FREE GASOLINE FROM NOON UNTIL 3:00 P.M.! HAPPY BIRTHDAY, AMERICA!" Is that gasoline a free good to...
Suppose a gasoline station offers the following promotion on the 4th of July: "TODAY ONLY: FREE GASOLINE FROM NOON UNTIL 3:00 P.M.! HAPPY BIRTHDAY, AMERICA!" Is that gasoline a free good to the owner of the station? Is it a free good for all the drivers who wait in long lines to fill up? Countless others might decide to avoid the "free" gas and fill up at other stations that charge $4.00 per gallon. In your opinion, are they foolish to pass up the opportunity? In the economic way of thinking, would they be failing to economize?
No, the free gasoline offered to consumers is not a free good to the owner of the gas station. This is because the owner had to pay a distributor for the amount of gasoline delivered to his or her station.
The gas is not necessarily a free good to all consumers though. Think of it this way: those consumers who are at the front of the line for free gas may have a very small waiting time. They may not burn much gas at all as they idle in line waiting to get to a pump. When they get to the pump they get free gas and this is certainly an economic benefit to them.
Some drivers may want the free gas and line up, but then find they are idling for an inordinate amount of time and are wasting gas, as well as time that could be spent on more productive activities – even better cost-saving activities – getting other deals elsewhere. Therefore, it would be better for them to refrain from getting this free gas.
A consumer may line up at 2:45 p.m. to get gas before heading into an afternoon work shift. He or she may get stuck in the line and end up being late for work. He or she may punch in late and end up being docked pay. Therefore, it was a waste of time and effort to attempt to get this free gas.
In addition, the economic benefit of waiting in line for this free gas is dependent upon how much gas the person needs. An individual may wait a long time and then end up just topping up his tank because it is already three-quarters full--but the person could not turn down this offer. His or her long idling time, plus the person’s lost time during which he could have been doing something more productive, may make getting this little bit of gas free a bad decision. On the other hand, if someone is very low on gas and ends up getting a significant amount of free gas then the idling time was worth it to be able to fill up on gas that world normally cost the person approximately $4.00 per gallon.