What Makes Humans Different? No Free Lunches, Opportunity Costs, and Chinese Toys

The Economics of Trust, Opportunity Costs, and the Myth of Self-Sufficiency

Lately, the news cycles have been filled with world leaders lamenting that trade is making us poorer. In response, they champion policies of protectionism—erecting trade barriers, promoting import substitution, and subsidizing local manufacturers to produce goods that are already made elsewhere at a fraction of the cost. Instead of focusing on what we do best, they choose inefficiency over specialization. Sadly, in the hands of populist leaders, economic reasoning often meets its most tragic demise.

It got me thinking—had I somehow missed a crucial lesson that these politicians mastered in their Economics 101? To find out, I revisited my first-semester notes from Principles of Economics at the Gokhale Institute of Politics and Economics, a class taught by Ashish Kulkarni, renowned for making economics anything but dull.

In today’s post, I’ll take you back 4.5 years to share the fundamentals I learned then—insights that seem to have been conveniently forgotten in today’s political discourse.

What made human beings different from other animals?

“We live in the company of strangers. We trust these strangers.”

What do you understand by this sentence?

You wake up in the morning. You make your coffee. You check your phone. You read newspapers. You get ready in the bathroom. You wear clothes and get ready. You wear socks and shoes. You sit in your car and tell your driver to take you to your office.

Did you manufacture your bed? your mattress? shoes? socks? bathroom taps, clothes? car?

Did you grow your coffee?

Did you design and assemble your phone?

Did you report and edit the newspaper?

Did you drive your car yourself?

This was a small thought experiment to make you realize that you trusted somebody else (many people) to complete your morning successfully. And this all was possible because we humans learned to TRADE.

We learned the concept of OPPORTUNITY COSTS. You can also drive, but you hired a driver because you can use your commute time to have some work calls or plan for the day ahead. If you would drive yourself, you would not be able to make those calls or write your plan for the day- this is called opportunity cost.

While I lived in Pune, I used to go to Poonam Aunty’s student kitchen to have Rs. 75 plates for breakfast, lunch, and dinner. I could have cooked myself in my room and saved those Rs. 225 a day, right?

However, I would lose on reading a few more pages of my Economics book or watching Cut the Clutter to keep me updated. This means even if I had not gone to Poonam Aunty’s kitchen, my lunch would not have been free. Thus, THERE ARE NO FREE LUNCHES.

Should we buy Chinese Toys?

What, Jeet! Is that even a question? Of course not! We must punish China for its actions at our borders. Instead, we should invest in India’s toy manufacturing industry and become Aatmanirbhar. Sure, we might have to pay more for locally made toys, but at least the money stays in India and makes us richer… right?

Well, actually—no.

By choosing expensive alternatives, millions of Indians wouldn’t be punishing China; they’d be punishing themselves. A handful of Indian industrialists might profit, but for society as a whole, the extra money paid for costlier domestic products—multiplied across millions of purchases—translates into a collective economic loss.

And as for punishing China? Our trade with them accounts for barely 2% of their total global trade. The impact on their economy would be negligible. The real cost would be borne by Indian consumers.

Understanding Opportunity Costs and Using Our Comparative Advantage

To explain opportunity cost, we'll answer this question: Why don't NBA players mow their own lawns? Ostensibly, NBA players are stronger and faster than their landscapers and could do it more effectively. However, NBA players can maximize their value and productivity by focusing on basketball rather than wasting energy with a lawnmower; the opportunity cost is too high. Instead, the basketball player and landscaper each specialize and trade, using money as an intermediary representation of their respective productivity.

Comparative advantage says that countries should behave similarly. Laborers in the United States have relatively high levels of education and relatively advanced capital goods; this makes them very productive. However, that doesn't necessarily mean that American workers should produce everything that American consumers need. Instead, maximum efficiency and output can be achieved by specializing in those areas with the lowest opportunity costs and trading with other countries.

Source: Investopedia

Meaning of Trade in Economics Vs in Finance

In Economics, trade is a non-zero-sum game—both parties can benefit.

Imagine going to your favorite restaurant and ordering a pizza. You enjoy a delicious meal and happily pay the bill. The restaurant, in turn, earns money and is equally satisfied. Neither you nor the restaurant feels cheated—both gain from the exchange. This is a classic positive-sum game, where trade creates value for everyone involved.

In Finance, however, trade operates as a zero-sum game—one party’s gain is another’s loss.

Suppose I sell you a share of Hindustan Unilever today, and a month later, its price rises by ₹50. You earn ₹50, but that’s ₹50 I could have gained had I held onto the stock. Your profit (+₹50) is offset by my opportunity loss (-₹50), making the net outcome zero.

While economic trade fuels growth and prosperity, financial trade is a competitive exchange—when one wins, another must lose.

TMKK- As Ashish Kulkarni says, “Toh Main Kya Karoon??”—So What??

After reading this article, if you are thinking about the takeaway. Then okay, let me take away your effort and tell you this:
Buying stuff made by other people makes me rich.

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