Whenever a shortage occurs (for example, in parking spaces), and the price does not rise or is not permitted to rise, some method of non-price rationing must occur (for example, driving around looking for a parking space). Which of the following is an advantage of price rationing relative to non-price rationing methods?
A) Economic theory indicates that price rationing leads to a less economically efficient allocation of goods.
B) Non-price rationing techniques redistribute income from consumers to producers; price rationing does not.
C) The demand for goods will be more elastic if price rationing is used to allocate goods.
D) When higher prices are used to resolve shortages, the higher prices will encourage suppliers to increase the quantity available.

Question

Quizplus · Accepted Answer

When prices are allowed to rise in response to a shortage, it creates an incentive for suppliers to produce more of the goods and bring them to market. This ultimately leads to an increase in the quantity available and a reduction in the shortage. Non-price rationing methods, such as queuing or lottery systems, do not provide this incentive for producers to increase supply. Therefore, price rationing is more effective in resolving shortages than non-price rationing methods.

Whenever a Shortage Occurs (For Example, in Parking Spaces), and the Price