What is Rationing?
Rationing is the strategic allocation of goods or services to manage periods of scarcity or crisis. This is typically executed by governments at either local or federal levels as a response to adverse conditions like extreme weather, trade restrictions, or during significant economic downturns and war.
Key Takeaways
- Responsiveness to Shortage: Rationing addresses the limited availability of high-demand goods or services.
- Government Involvement: It is often a government-mandated tool to mitigate scarcity impacts and cope with economic challenges.
- Risks of Rationing: It may lead to black markets and unethical behavior as people seek to bypass restrictions.
How Rationing Works
Rationing ensures controlled distribution of scarce goods or services. For instance, weekly food rations may be allocated per individual, or watering lawns might be limited to certain days for households.
According to the law of supply and demand, when the supply of a particular good or service drastically decreases below demand, prices rise significantly—often becoming unaffordable. Rationing can control this by restraining demand artificially.
Additionally, governments may impose price ceilings to regulate costs, necessitating rationing to maintain minimum supply levels. However, these actions usually lead to ongoing shortages.
Rationing Example
The 1973 Arab oil embargo caused U.S. gasoline supplies to drop, spurring price increases. The federal government then rationed oil supplies to states, which developed systems to evenly distribute their limited stock. For example, some states regulated gasoline purchase days based on car license plate numbers—odd numbers on odd dates and even numbers on even dates. This was effective in controlling gas prices but resulted in substantial waiting lines.
Governments facing the dilemma of either soaring prices for basic needs or enforcing rations typically prefer the latter. This ensures some measure of fairness and control over the necessities’ accessibility.
Special Considerations
Classical economic theory suggests price increases moderate demand and encourage supply expansion, stabilizing market imbalance. If the market were so simplistic, rationing would counterintuitively generate shortages and be unnecessary due to market self-correction.
Nevertheless, the demand for crucial resources like food, fuel, and healthcare is inelastic; it doesn’t decrease proportionately with price hikes. New suppliers possibly can’t recover from shortages caused by crises such as natural disasters, war, or embargoes. Often, rationing becomes a necessary governmental intervention when faced with potential larger economic disruptions.
Rationing to Combat Shortages
Many capitalist nations temporarily impose rationing during wartime or disaster-related shortages. Historic instances include U.S. and British ration books during World War II for items such as tires, gasoline, sugar, meat, and butter.
Contrarily, in communist setups, rationing can be a constant factor in daily life. For example, in Cuba in 2019, citizens used ration books to obtain limited, low-cost basics like rice, beans, and coffee, while the true survival needs exceeded what the ration provided, pushing citizens to higher-priced markets.
Cuban rationing aims to offset economic strains, but the balance of affordability versus controlled supply underscores its challenges.
Risks of Rationing
Though serving to constrain demand, regulate supply, and control prices by the government, rationing doesn’t eliminate market dynamics. Black markets often evolve under rationing, where people trade unwanted rations for sought-after goods, or sell at true market value.
Such markets undermine rationing objectives, sustaining prices aligned with authentic demand but occasionally meeting deflection gaps causing shortages.
Related Terms: scarcity, recession, law of supply and demand, price ceilings, embargo.
