lnc4 - Notes #3. Scarcity, Rationing & market Economics...

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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: 1. The price system is the only rationing method consistent with a market economy. The price system is pretty simple. 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 good. 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 invisible hand.) In contrast to the other rationing methods, the price system requires no intervention by government authorities. 2. Queuing (pronounced the same as cueing ) 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. Examples abound. 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.
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This note was uploaded on 11/23/2011 for the course ECON 231 taught by Professor Staff during the Fall '09 term at Calhoun Community College.

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lnc4 - Notes #3. Scarcity, Rationing & market Economics...

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