What is the rationing function of prices.?
Rationing in the sense of allocating available quantity of any particular thing to different uses, purposes or persons in the optimal manner is the main function of prices. Any deviation from optimal allocation would imply possibility og gain through re-allocation and this is reflected in price being not in equilibrium and therefore in motion due to demand supply forces so that the market- clearing price is discovered.
However, there is another concept of rationing. Such rationing is effected by the Govt. There the prices have little to do officially or legally in the allocation of resources orrationing. Allocation or rationed quantities are decided by the Govt. without regard to the price responsive demand - supply functions. In such situation illegal/ unofficial/ black markets operate with prices trying to reallocate from the rationed allocation.
Prices ration products according to who needs them, wants them, or can afford them more. Scarcity being the norm for most resources, prices are the only way to limit consumption.
I hope that helps. I really understand the concept better than I can explain it.
The answers post by the user, for information only, FunQA.com does not guarantee the right.
More Questions and Answers: