Notes #4--Scarcity, rationing, and market economics (Ch. 4)
All societies face the condition of scarcity, hence all societies must ration goods. The question isn’t whether goods
must be rationed, but how. When a good becomes relatively more scarce, for instance, there isn’t as much to go
around as before, and people will have to make do with less. The only issue is how they will go about it.
Rationing methods fall into two categories:
market and non-market. The following table lists them:
The price system
is the only rationing method consistent with a market economy.
The price system is pretty
Producers sell their goods at whatever price the market will bear; buyers buy whatever goods they think are
worth the price charged.
Everyone acts in his or her own interest.
If a good becomes relatively more scarce, sellers
will realize this, and will mark up the price.
Buyers might not like this, but they will respond by buying less of the
Bad weather in Florida would reduce the number of oranges available that season.
Orange producers raise
their prices, not because they want to serve the common good but because they want to make higher profits and
realize that they can get away with it. Even so, they serve society's interests, because buyers respond by buying
fewer oranges, which they would have to do anyway, since there are fewer of them. If the next season’s crop is a
good one, sellers will have to reduce their prices to sell it all, and buyers will respond by buying more, which is a good
thing, because if they didn’t there would be a lot of wasted oranges. (This is the idea behind the concept of the
In contrast to the other rationing methods, the price system requires no intervention by government
(pronounced the same as
) is "first come, first served." (To queue, in British English, means to
wait in line.)
A limited quantity of the good is offered to buyers for free or for a low, government-administered price.
Often, this is done in the name of "fairness," the idea being that charging the market price is somehow unfair. The
product is sold until supplies run out, so people who are too far back in line get none, regardless of how much they
are willing to pay.
The line can be a physical one, where people stand on the sidewalks, or a "virtual" one, such as
having your name on a waiting list.
Rock concert tickets, football game tickets, reservations at a
restaurant, adoption of children, and registering for a college course, in the US; elsewhere, where queuing is more
common, buying ordinary consumer goods, obtaining medical treatment, and obtaining government documents.
There are two big problems with queuing.