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Rationing
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Rationing is the controlled distribution of resources and scarce goods or services. Rationing controls the size of the ration, one's allotted portion of the resources being distributed on a particular day or at a particular time.
a class="link1" onMouseover='showByLink("m1168020",this)' onMouseout='hide("m1168020")'href="http://www.absoluteastronomy.com/topics/Economics">economics, it is often common to use the word "rationing" to refer to one of the roles that prices play in markets, while rationing (as the word is usually used) is called "non-price rationing." Using prices to ration means that those with the most money (or other assets) and who want a product the most are first to receive it.
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Encyclopedia
Rationing is the controlled distribution of resources and scarce goods or services. Rationing controls the size of the ration, one's allotted portion of the resources being distributed on a particular day or at a particular time.
In economics
In economics, it is often common to use the word "rationing" to refer to one of the roles that prices play in markets, while rationing (as the word is usually used) is called "non-price rationing." Using prices to ration means that those with the most money (or other assets) and who want a product the most are first to receive it. Such rationing happens daily in a market economy. Non-price rationing follows other principles of distribution. Below, we discuss only the latter, dropping the "non-price" qualifier, to refer only to marketing done by an authority of some sort (often the government).
In market economics, rationing artificially restricts demand. It is done to keep price below the equilibrium (market-clearing) price determined by the process of supply and demand in an unfettered market. Thus, rationing can be complementary to price controls. An example of rationing in the face of rising prices took place in the Netherlands, where there was rationing of gasoline in the 1973 energy crisis.
A reason for setting the price lower than would clear the market may be that there is a shortage, which would drive the market price very high. High prices, especially in the case of necessities, are unacceptable with regard to those who cannot afford them. Traditionalist economists argue, however, that high prices act to reduce waste of the scarce resource while also providing incentive to produce more (this approach requires assuming no horizontal inequality).
In wartime, it is usually imperative for a government to maintain the support of this part of the population, to maintain "equality" especially since in most countries, the working-class and poor families contribute most of the soldiers.
Rationing using coupons is only one kind of non-price rationing. For example, scarce products can be rationed using queues. This is seen, for example, at amusement parks, where one pays a price to get in and then need not pay any price to go on the rides. Similarly, in the absence of road pricing, access to roads is rationed in a first come, first serve queueing process, leading to congestion.
Authorities which introduce rationing often have to deal with the rationed goods being sold illegally on the black market.
Credit rationing
The concept in economics and banking of credit rationing describes the situation when a bank limits the supply of loans, although it has enough funds to loan out, and the supply of loans has not yet equalled the demand of prospective borrowers. Changing the price of the loans (interest rate) does not equilibrate the demand and supply of the loans. The bank finds that raising the interest rate beyond a certain level actually reduces its profitability.
Joseph E. Stiglitz and Andrew Weiss's 1981 paper was one of the early papers to explain why the bank (or any lending institution for that matter) may credit ration its borrower if 1) the bank was unable to perfectly distinguish the risky borrowers from the safe ones 2) the loan contracts were subject to limited liability (if projects returns were less than the debt obligation, the borrower bears no responsibility to pay out her pocket).
Raising the interest rate may cause adverse selection which would lead to increases in the number of 'risky' borrowers in the pool of aspiring borrowers. With higher debt obligations (due to higher interest rate) only the risky borrowers with higher returns would be ready to take up the banks contract. Recall, that with limited liability, the borrowers repay the loan if successful, but escape the consequence of failure of the project. Thus, only borrowers with riskier projects would be ready to take high interest rate loans. Thus, raising the interest rate increases the proportion of the risky borrowers in the project and reduces the overall profitability of the bank.
Military rationing
Rationing has long been used in the military, especially the navy, to make supplies or rations last for a defined duration, such as a voyage.
Civilian rationing
Rationing is often instituted during wartime for civilians as well. For example, each person may be given "ration coupons" allowing him or her to purchase a certain amount of a product each month. Rationing often includes food and other necessities for which there is a shortage, including materials needed for the war effort such as rubber tires, leather shoes, clothing and gasoline.
Towards the end of the First World War, panic buying in the United Kingdom prompted rationing of first sugar, then meat, for the rest of the war. During World War II rationing existed in many countries including the United Kingdom and the United States.
Civilian peace time rationing of food may also occur, especially after natural disasters, during contingencies, or even after failed governmental economic policies regarding production or distribution, the latter happening especially in highly centralized planned economies. Examples of these situations include North Korea, China during the 1970s and 1980s, Communist Romania during the 1980s, the Soviet Union in 1990-1991, and Cuba today. This led to rationing in the Soviet Union, Rationing in Communist Romania, rationing in North Korea, rationing in Cuba, and austerity in Israel.
United States
At the beginning of World War II, a rationing system was established in the United States. Gasoline shortages were especially acute in the Eastern states, because in the early 1940s, most petroleum was carried by tanker. This conveyance became dangerous with U-Boats operating off the US coast. Until the Big Inch and Little Big Inch pipelines started pumping petroleum from East Texas to the northeast states, gas supplies in the East were tight. A national speed limit of 35 miles per hour was imposed to save fuel and tires. Depending on need, civilians were issued one of a number of different classifications of gas cards, entitling them to different quantities of gasoline each week. When purchasing gas, one had to present a gas card along with a vehicle sticker and cash. Books of ration stamps were issued for other commodities and were valid only for a set period, to forestall hoarding.
To get a classification and rationing stamps, one had to appear before a local War Price and Rationing Board which reported to the U.S. Office of Price Administration. Each person in a household received a ration book, including babies and small children who qualified for canned milk not available to others. To receive a gasoline ration card, a person had to certify a need for gas and ownership of no more than five tires. All tires in excess of five per driver were confiscated by the government, because of rubber shortages. An A sticker on a car was the lowest priority of gas rationing and entitled the car owner to 3 to 4 gallons of gas per week. B stickers were issued to workers in the military industry, entitling their holder up to 8 gallons of gas per week. C stickers were granted to persons deemed very essential to the war effort, such as doctors. T rations were made available for truckers. Lastly, X stickers on cars entitled the holder to unlimited supplies and were the highest priority in the system. Ministers of Religion, police, firemen, and civil defense workers were in this category. A scandal erupted when 200 Congressmen received these X stickers.
Tires were the first item to be rationed in January 1942 because supplies of natural rubber were interrupted. Soon afterward, passenger automobiles, typewriters, sugar, gasoline, bicycles, footwear, fuel oil, coffee, stoves, shoes, meat, lard, shortening and oils, cheese, butter, margarine, processed foods (canned, bottled and frozen), dried fruits, canned milk, firewood and coal, jams, jellies and fruit butter, were rationed by November 1943.
Medicines such as penicillin were rationed by a triage committee at each hospital.
Many different levels of rationing went into effect. Some items, such as sugar, were distributed evenly based on the number of people in a household. Other items, like gasoline or fuel oil, were rationed only to those who could justify a need. Restaurant owners and other merchants were accorded more availability, but had to collect ration stamps to restock their supplies. In exchange for used ration stamps, ration boards delivered certificates to restaurants and merchants to authorize procurement of more products.
The work of issuing ration books and exchanging used stamps for certificates was handled by some 5,500 local ration boards of mostly volunteer workers selected by local officials.
Each ration stamp had a generic drawing of an airplane, gun, tank, aircraft carrier, ear of wheat, fruit, etc. and a serial number. Some stamps also had alphabetic lettering. The kind and amount of rationed commodities were not specified on most of the stamps and were not defined until later when local newspapers published, for example, that beginning on a specified date, one airplane stamp was required (in addition to cash) to buy one pair of shoes and one stamp number 30 from ration book four was required to buy five pounds of sugar. The commodity amounts changed from time to time depending on availability. Red stamps were used to ration meat and butter, and blue stamps were used to ration processed foods.
To enable making change for ration stamps, the government issued "red point" tokens to be given in change for red stamps, and "blue point" tokens in change for blue stamps. The red and blue tokens were about the size of dimes (16 mm) and were made of thin compressed wood fiber material, because metals were in short supply.
ration stamp
Image:WWII_USA_Ration_Stamps_2.jpg|Artillery ration stamp
Image:WWII_USA_Ration_Stamps_3.jpg|Tank ration stamp
Image:WWII_USA_Ration_Stamps_4.jpg|Aircraft Carrier ration stamp
Image:WWII_USA_Basic_Mileage_Ration_(front).jpg|Basic mileage ration stamps for 1943 Plymouth
Image:WWII_USA_Basic_Mileage_Ration_(back).jpg|Back of mileage stamps
United Kingdom
The British Ministry of Food refined the rationing process in the early 1940s to ensure the population did not starve when food imports were severely restricted and local production limited due to the large number of men fighting the war. Rationing did not end in the United Kingdom until the 1950s.
Europe
Another form of rationing that was employed during World War II, called Ration Stamps. These were redeemable stamps or coupons. Every family was issued a set number of each kind of stamp based on the size of the family, ages of children and income. This allowed the Allies and mainly America to supply huge amounts of food to the troops and later provided a surplus to aid in the rebuilding of Europe with aid to Germany after food supplies were destroyed.
Emergency rationing
Rationing of food and water may become necessary during an emergency, such as a natural disaster or terror attack. The Federal Emergency Management Agency (FEMA) has established guidelines for civilians on rationing food and water supplies when replacements are not available. According to FEMA standards, every person should have a minimum of one quart per day of water, and more for children, nursing mothers, and the ill. Water should not be rationed in an emergency. Food, on the other hand, can be rationed for many days.
Tax Rationing
Tax rationing is the limiting of demand via tax. High tax has same effect as high price which shrinks demand to be equal to supply. With tax rationing, part of the high price paid by consumers goes to the government instead of going to the resource suppliers. Tax rationing may or may not push up the price of the tax rationed resources which have supply shortage problem. The additional rise in equilibrium price due to tax depends on the ratio of price elasticity of supply to price elasticity of demand.
Price rise due to tax = amount of tax * R / (1+R)
Where R is the ratio of price elasticity of supply to price elasticity of demand
When supply is as elastic as demand, R=1, then rise of price equals to half the amount of tax which means half of the tax to be paid by supplier while the other half to be paid by consumer.
When supply is much more elastic than demand, R approaches infinite, then rise of price will approach the amount of tax which means the consumers pay most of the tax.
When supply is much more inelastic than demand, R approaches zero, then rise of price will approach zero too which means suppliers pay most of the tax.
In case of supply shortage of a scarce resource, there is a price above which the supply of the resource is profitable. But no matter how high the price is above the profitable price, the supply cannot be easily increased. So the supply is perfectly inelastic at any price above the profitable price. Then tax rationing can be used to lower the supply price to just profitable without affecting the equilibrium demand price. The tax revenue generated by the government can be used to compensate the consumers by cutting other tax or by other means. But the compensation should not be in any form of subsidy to encourage the consumption of the tax rationed resource otherwise the effect of tax rationing will be offset.
World wide tax rationing
To be effective, tax rationing must be implemented by all countries of the world or at least most of the major resource consuming countries. Otherwise, the demand in the non-tax-rationing countries will rise offsetting the fall of demand in tax rationing countries.
To be fair, resource for export should not be taxed. Let the importing countries tariff the resource so that the governments of the importing countries can generate revenue to compensate their people who pay high price for the resource.
Advantages of tax rationing
- Discourages wasting of resources due to high resource prices.
- Encourages research, development and consumption of alternatives due to high resource prices.
- Fairest, whoever consumes the resource has to pay tax to the whole society which gives up the resource as well as the cost to the suppliers.
- Much more acceptable than pure price rationing because the high price will be affordable due to government compensation.
- Little or no change to the equilibrium resource price when supply is highly inelastic and inflation will not be worsen.
- Reduces the chance of economic melt down due to high resources price because the additional price above the cost of the resources paid by the consumers will go back to the economy via the governments.
- Buy time for finding solution to the shortage of resources.
Future of tax rationing
Up to the moment this article was written, world wide tax rationing has not yet been implemented in human history. But in future, as the globe is running out of certain important resources such as fossil oil, most countries of the world may have to sit together to consider tax rationing in order to prevent economic disasters caused by the shortage of resources.
Carbon Rationing
- Main Article: Carbon rationing
Personal carbon trading refers to proposed emissions trading schemes under which emissions credits are allocated to adult individuals on a (broadly) equal per capita basis, within national carbon budgets. Individuals then surrender these credits when buying fuel or electricity. Individuals wanting or needing to emit at a level above that permitted by their initial allocation would be able to engage in emissions trading and purchase additional credits. Conversely, those individuals who emit at a level below that permitted by their initial allocation have the opportunity to sell their surplus credits. Thus, individual trading under Personal Carbon Trading is similar to the trading of companies under EU ETS.
Personal carbon trading is sometimes confused with carbon offsetting due to the similar notion of paying for emissions allowances, but is a quite different concept designed to be mandatory and to guarantee that nations achieve their domestic carbon emissions targets (rather than attempting to do so via international trading or offsetting).
See also
External links
- - FEMA
- - Spartacus Educational
- - Memories of the 1940s
- - Ames Historical Society
- - Genealogy Today
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