Rationing definition serves to be the government’s mandate –at the federal or local level. It can be undertaken as a response to poor weather conditions –Import or export or trade restrictions.
The concept of rationing is known to involve the overall controlled distribution of some scarce product or service. For instance, an individual could be allotted a specific amount of food on a weekly Basis or specific households might be enabled to water the respective plants only on particular days.
As per the universal Law of Supply & demand, when the overall supply of the available products or services tends to fall below the quantity that has been demanded, there occurs an increase in the overall equilibrium price –mostly to higher levels. Rationing artificially helps in depressing the overall price by putting constraints on the overall demand.
On the other hand, the price ceilings might be imposed. This helps in the creation for the requirement of rationing for maintaining a specific level of the overall supply. Whatever might be the case, rationing is known to typically result in some sort of shortages.
The Arab oil embargo that had occurred in 1973 had resulted in the plummeting of the overall gasoline supplies across the United States of America. Eventually, this led to the overall rise of the prices. As a response, the federal government went forward with rationing the supplies of domestic oil to the respective states. This, in turn, had executed systems for rationing the respective limited stocks.
In particular states, cars featuring licensing plates and ending in some sort of odd numbers were only given the permission to fill up at specific odd-numbered dates. The given type of responses prevented the gas prices from rising further. However, eventually, these led to longer lines.
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As per the classical economic theory, it is suggested that when the demand is going to exceed the existing supply, prices are going to rise. Moreover, in turn, higher prices are known to curtail the overall demand while encouraging new participants in the Market. This helps in increasing the overall supply while bringing the prices down significantly to various levels. If the overall reality was this minimal & simple, rationing would have turned out to be both counterproductive and unnecessary. This is because it leads to the creation of shortages as the market will be acting towards re-stabilizing itself.
The issue is that for some specific products & services, including medical care, food, and fuel, the overall demand tends to be inelastic. It implies that the same does not fall under proportion for the given increase in the price. At the same time, as new suppliers enter for rebalancing the markets, it is not possible in case the overall shortage turns out to be the outcomes of a natural disaster, crop failure, or others.