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Non-Price Rationing

Queuing is a commonly-used way to solve the rationing problem caused by price ceilings. A queue is a waiting line that solves the rationing problem on a "first-come, first-served" basis. Although price ceilings limit the monetary cost that buyers can pay so that buyer equilibrium cannot be restored by higher prices, they do not limit the nonmonetary cost of waiting.

Under a system of queuing, waiting time changes to restore buyer equilibrium. A person who is willing to buy five items for $1.00 each with no waiting time may be unwilling to buy any if the price is $1.00 with a two-hour wait. Waiting time rises until enough buyers drop out of the market to restore the match between the amount available and the amount people are willing to buy.1

Although queuing is a rarity in the United States, it was part of daily life in Eastern Europe and the Soviet Union before 1990. Hedrick Smith explained:

"The only real taste of stoical shopping vigils in recent American history were the pre-dawn lines at service stations during the gasoline crisis in the winter of 1973-4... But it was temporary and only for one item. Imagine it across the board, all the time, and you realize that Soviet shopping is like a year-round Christmas rush. The accepted norm is that the Soviet woman daily spends two hours in line, seven days a week. . . I noted in the Soviet press that Russians spend 30 billion man-hours in line annually to make purchases.... 30 billion man-hours alone is enough to keep 15 million workers busy year-round on a 40-hour week."2

Smith noted that coping with shortages and queuing required a different approach to shopping than that with which Americans were familiar. People tended to carry large amounts of cash and a bag or briefcase whenever they went out, just in case they found some desirable good. When they saw a line, they joined it because there usually was something worthwhile at the front. People shopped not just for themselves but for friends and kin, and as a result "know by heart the shoe, bra, pant and dress size, waist and length measurements, color preferences and other vital particulars for a whole stable of their nearest and dearest..." 3

In another reading selection we noted that it was possible to explain the gasoline shortage and the resulting queuing in the early 1970s in terms of a good-versus-bad model, but that economists did not use this model. Rather, economists consider the shortages the direct result of price controls in existence at the time. A move by certain oil-producing nations caused the supply curve for gasoline to shift to the left. When U.S. government price restrictions kept pump prices from rising to equilibrium, shortages resulted. These shortages were predictable because price is a rationing device in this model. In contrast, the only function of price in a good-versus-bad model is to take money from one group and give it to another.

A second system of nonprice rationing is with coupons. In this system, the government distributes coupons that must be presented along with money in order to buy a product. Coupons restore buyer equilibrium because they change the cost of a product, though in a different way than queuing does. Under the system of queuing, the cost of a product is its price plus waiting time; under a system of coupon-rationing, the cost of a product is its price in money plus its price in coupons. The picture below shows coupons from two of the ration books issued during the Second World War, when the United States had an extensive system of coupon rationing. (Click here to see more pictures of these books.)

Picture of ration stamps

Because price ceilings and floors criminalize transactions that benefit both buyer and seller, they give people an incentive to break the law. The resulting illegal transactions are called the black market. In an economy of free markets, there can be no black markets.

Before we move on to looking at how prices and markets distribute income, we pause for another look at price controls..

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1There are actually two sorts or queuing, by line and by list. An example of queuing by list is the waiting list public libraries often have for popular new releases. Queuing by list works when the value of an item decreases the longer one must wait for it. Many people want to read new books while they are still on the best-seller list, and if they have to wait too long, they will no longer want to read the book.

2The Russians (Quadrangle/The New York Times Book Co., 1976), p. 64.

3Ibid., p. 62.

Copyright Robert Schenk