Mark,

Whether a variable is bound or free depends on the scope under consideration. In

  (\x. x) (\y. x)

the variable x is bound in \x. x, but free in \y. x; hence, it's free in (\x. 
x) (\y. x) as a whole. However, in

  \x. (\x. x) (\y. x)

it's bound...

HTH,

  Stefan

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