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Normative shortages and the limits of rationing by price

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  • Diduch, Amy McCormick

Abstract

Textbook models of demand and supply overlook the potential for market shortages at equilibrium prices and obscure the dependence of demand on income. The use of a step demand function and the delineation of “wants” and “needs” results in different conclusions about the size of market shortages, the role of price in eliminating shortages, and the meaning of normative shortages. The existence of market and normative shortages at equilibrium prices suggests that more attention should be given to optimal rationing of consumer goods when price rationing fails to achieve socially efficient outcomes. This analysis is illustrated using the market for N95 protective masks in the spring of 2020 and includes suggestions for classroom use.

Suggested Citation

  • Diduch, Amy McCormick, 2021. "Normative shortages and the limits of rationing by price," International Review of Economics Education, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:ireced:v:36:y:2021:i:c:s147738802030027x
    DOI: 10.1016/j.iree.2020.100200
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    References listed on IDEAS

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    More about this item

    Keywords

    Normative shortages; Non-price rationing; Step demand functions;
    All these keywords.

    JEL classification:

    • A2 - General Economics and Teaching - - Economic Education and Teaching of Economics
    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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