Posted in Operations and Supply Chain Terms, Total Reads: 166
Rationing is defined as the process of controlled distribution of scanty goods, resources and services. It can also be termed as an artificial restriction on the demand. This process essentially controls the amount of allowed portion of resources which are available or are distributed to anyone at a particular time or on a particular day.
The process of rationing is most commonly carried out in cases where there is a requirement to keep the prices of the products well below the equilibrium price determined by the process of supply and demand in a free market. Thus, it is a complementary process to price controls. For example: Rationing was carried out during the energy crisis of 1973 when the prices were rising in various countries. Here, the rationing of gasoline was carried out during this period.
Price of a product or commodity is set lower than the price set by the market due to the shortage of these goods, which can drive the price of the product very high. High prices, especially in cases of essential commodities necessary for survival are highly undesirable when considered with respect to the bottom of the pyramid, which will not be able to afford these high prices. But another theory by traditional economists also says that the high prices can facilitate the process of reduction of waste of the scarce resource. At the same time, it also provides the incentive for enhanced levels of production.
Rationing can also be carried out using non-price rationing. One of the ways to carry it out is through ration stamps. Another way to carry out rationing is through queues. This can be seen in amusement parks, where the person as to pay a price to get in the amusement park but is not required pay any separate price to enjoy the rides. Another good example of same is the absence of road pricing. In these cases, the access to roads is rationed on first come first serve basis, leading to congestion.