Course

What do we mean by TANSTAAFL? TANSTAAFL is short for a phrase you may have heard before -- “There ain’t no such thing as a free lunch.” In other words, there’s

What do we mean by TANSTAAFL?

TANSTAAFL is short for a phrase you may have heard before -- “There ain’t no such thing as a free lunch.”

In other words, there’s always a cost to any decision.

If your favorite bakery advertises free cupcakes, are they really free? You need consider the time it takes you to drive to the bakery, wait in line, etc. These are the “costs” of the seemingly free cupcakes.

TANSTAAFL can also help explain why “fun” jobs pay lower wages than “boring” jobs. Would you rather be a sewer inspector spending your days underground or a lifeguard on the beach? Most would say that being a lifeguard is a more fun job, but a sewer inspector has higher wages to attract workers and to compensate for the not-so-fun aspects of the job. For jobs requiring equal skill and education, more fun = lower wages, and less fun = higher wages.

To learn more, see Marginal Revolution University’s Principles of Microeconomics video on The Tradeoff Between Fun and Wages.

Download
Options
Practice Questions

Transcript

What is TANSTAAFL? TANSTAAFL is an acronym standing for: "There Ain't No Such Thing As A Free Lunch." This phrase is attributed to Milton Friedman. It means that there's always a cost to any decision. If an ice cream shop advertises free ice cream, is it really free? TANSTAAFL! Consider the time it takes you to drive to the ice cream shop, wait in line, and so on. There are lots of other things you could be doing instead of getting your "free" ice cream.

 

TANSTAAFL can also explain why fun jobs pay lower wages than boring jobs. Imagine two jobs. Both require equal amounts of skill, education, and so forth, but one of the jobs is a lot more fun than the other. And let's also suppose that the fun job has higher wages. So the situation looks a bit like this. So, higher wages and more fun -- sounds like a free lunch! But, TANSTAAFL -- There ain't no such thing as a free lunch. So what will happen? If two kinds of jobs require equal skills and education, then the workers will exit the industry with the low-wage, low-fun jobs, and enter the industry with the high-wage, high-fun jobs.

 

But as the supply of workers in the low-wage, low-fun job decreases, the wages in that industry will increase. And as the supply of workers in the high-wage, high-fun job increases, the wages in that industry will decrease. Workers will continue to move from one industry to the other until jobs that require equal skills, education, and so forth, have equal compensation packages -- not equal wages, but a combination of wages and fun so that workers are equally happy in either job and no longer have an incentive to move.

 

Notice that this means that the fun job has to have lower wages. Or, to put it differently, the job that isn't fun has to have higher wages to compensate for all the not-fun stuff. So for jobs requiring equal skills and so forth, more fun means lower wages, and higher wages means less fun. It's a trade-off. TANSTAAFL -- There ain't no such thing as a free lunch. The same idea applies to any other job characteristic, and lots of other situations. So just remember, anytime you think you're getting something for free, think TANSTAAFL.

 

Ask a Question

Please register or login to ask a question