is yes, an equilibrium has not yet been reached” (Yoram Barzel, “Economic Analysis
and Property Rights,” 1989, p. 19). In other words, if there exists an opportunity for
anyone to make money in this market, it is not at equilibrium.
We’ll use this rule of
thumb to evaluate various methods for rationing the quantity Q
a. Black Market
If the queue rules are the least restrictive, so that a person may buy as many
units of food as s/he desires in one trip through the line and trading is permitted,
a black market will likely develop.
The first person in line would buy all the food
at price P
, then sell it at the price consumers are willing to pay, P
, making a
profit of area B+D.
However, if someone else got to the line first, s/he could snag
the black marketer’s profit.
Thus, there is a strong incentive to be the first in line.
But, being first in line is not free, as it means getting there early and spending a
lot of time waiting.
At the equilibrium, the cost of being first in line will be bid up
until it equals the potential profits, area B+D.
Thus, consumers pay price P
lose area B+C, producers receive price P
and lose area D+E, and the black
market earns and spends area B+D, for a DWL to society of B+C+D+E.
b. Paying Someone to Wait
This is similar to the black market case, but is a more likely outcome when
trading is allowed once the food is purchased, but there are limits on the amount
of food that can be purchased in one trip through the queue.
Consumers with a
high willingness to pay for food, but a high opportunity cost of time could pay
someone else (with a lower opportunity cost) to wait in line for them.
In this case,
the “waiters” must be exactly compensated for the value of the time they spend in
If they were underpaid, another consumer with a higher willingness to pay