I am concerned that the word “ration” has a bad reputation. In a recent CBS story about a new Medicare/Medicaid head, and throughout the healthcare reform debate, stories about reputed “rationing” kept popping up. There was no need, though, to search for examples because rationing is everywhere. Healthcare has always been rationed because its supply is limited.
Actually, the supply of everything is limited. As a result, societies have to have a way to decide who gets what. They have to ration. In the U.S., most goods and services are rationed through a market system. In the market system, prices act as a rationing mechanism. For example, when price rises, consumers typically buy less.
During World War II, rationing was more extreme. With very limited domestic quantities of such goods as butter, sugar, and gasoline, consumers were allocated specific amounts through books of coupons. Others, hoping to buy more than their coupon totals, located black markets in which an illegal demand and supply price system also rationed goods.
It is true that we usually use the word ration to describe a more extreme drop in distribution. Still though, I hope we will remember that whether we have a lot or a little, still a limited amount has to be allocated. As a result, everyday, our economy rations pizza and eggs and doctor’s appointments.
The Economic Lesson
In order to produce and distribute goods and services, all societies have to answer three basic economic questions: 1)What goods and services should we produce? 2) How will land, labor, and capital be used to produce goods and services? 3) To whom will incomes go?
Societies have answered “what, how, and to whom” using three basic systems: 1) the market: demand and supply, 2) command: someone decides and others obey, 3) tradition: the same tasks are passed down through generations
The market, command, and tradition are all rationing systems.