Imagine, just for a moment, that you live in an apartment building that offers a special lunch deal. Every morning, the landlords put out a tray of 100 sandwiches for their tenants. They’re darn good sandwiches — each one costs $10 to make. Yet the landlords offer a discount, so that hungry tenants can buy a sandwich for just $3. If you don’t want a sandwich, you don’t pay anything. But if you do want a sandwich, you get a bargain!
Neat, right?
Well, not if you remember one of the key rules of economics: There is no free lunch. There isn’t even a below-cost lunch. The building owners are going to have to pay for the sandwiches somehow. And since their only source of income (besides the sandwich fees) is rent, that means that they’ll do their best to make up the money they lose on sandwiches by charging higher rent.
Now, imagine that the situation is even wackier: The building makes 100 sandwiches every day, but has only 80 tenants — 20 of whom don’t even like sandwiches! That means that 40 sandwiches go to waste every day, and at least 20 tenants never eat a single sandwich.
The economics of this crazy system quickly spiral out of control.... Read more
