What Is Rationing?

What Is Rationing?

Let me explain rationing directly: it's the government's way of controlling how a scarce good or service gets distributed to handle shortages. This control comes from local or federal authorities and kicks in during tough times like bad weather, trade restrictions, or extreme situations such as recessions or wars.

Key Takeaways

You should know that rationing limits goods or services that are in high demand but low supply. Governments use it to soften the blow of scarcity and tackle economic issues. However, it can lead to black markets and shady dealings as people dodge the restrictions imposed by these measures.

How Rationing Works

Rationing means distributing a limited good or service in a controlled manner. For instance, you might get a set amount of food each week, or rules could restrict lawn watering to specific days for households.

Based on supply and demand, when supply drops below demand, prices shoot up, often becoming unaffordable. Rationing can keep prices down by restricting demand artificially.

Price ceilings might be set instead, but they can force rationing to keep supply at a certain level. Either way, you're likely to see shortages as a result.

Rationing Example

Take the 1973 Arab oil embargo: it slashed gasoline supplies in the US, driving prices higher. The federal government rationed oil to states, which then set up their own systems, like allowing cars with odd-numbered plates to fill up only on odd days and even plates on even days. This stopped prices from skyrocketing more, but it caused long lines at pumps.

Important Considerations

When governments face letting prices of essentials climb endlessly or imposing rations, they usually pick rations. As a policymaker, you'd have to choose from tough options, all carrying some downside risks.

Rationing to Combat Shortages

Even capitalist economies have turned to rationing temporarily for wartime or disaster shortages. The US and Britain used ration books in World War II to cap purchases of tires, gasoline, sugar, meat, butter, and more.

In communist systems, rationing was often ongoing. Cuba, facing a 2019 economic crisis, issued ration books giving each person tiny amounts of rice, beans, eggs, sugar, coffee, and oil for pennies. That's not enough to live on, so people buy extra on the open market at much higher prices, with limits on better items like chicken.

Note on Cuba

Cuba uses rationing to ease economic crisis effects; you get small basics almost free, but everything else is expensive and limited in supply.

Risks of Rationing

Rationing lets governments curb demand, regulate supply, and cap prices, but it doesn't fully override supply and demand laws. Black markets emerge where people trade unwanted rationed items for what they need.

These markets let sales happen at demand-driven prices, which undercuts rationing goals but can sometimes ease shortages.

Special Considerations

Classical economics says excess demand raises prices, which cuts demand and draws in new suppliers to balance things out. If it were that straightforward, rationing would create shortages and be unnecessary since markets self-correct.

But for inelastic demands like food, fuel, or medical care, price hikes don't reduce demand much. New suppliers can't always enter if shortages stem from crop failures, wars, disasters, sieges, or embargoes. Though not perfect, governments resort to rationing to avoid worse economic fallout.

What Are Some Examples of Rationing?

World War II saw heavy rationing in the US and UK with books controlling food, fuel, and materials like meat, sugar, and gasoline for the war effort. The Soviet Union rationed post-WWII due to shortages. In the 1970s, the US rationed gas amid the Arab oil embargo.

What Is the Difference Between Rationing and Hoarding?

Both deal with scarcity, but rationing is a government tool to fairly distribute limited goods like food or care, preventing shortages collectively. Hoarding is personal stockpiling out of fear, which worsens shortages and inflates prices.

What Are the Problems With Rationing?

A big issue is it doesn't always allocate by true need; equal shares might give too little to some and extra to others, sparking black markets where items trade at higher prices based on demand.

The Bottom Line

Rationing is a government practice to handle scarce goods in crises like wars or downturns, limiting access to food or fuel to avoid price spikes and shortages. It can spawn black markets as people bypass rules. While it curbs demand, it doesn't end shortages and can mess with supply-demand balance, especially for essentials.