Normative shortages and the limits of rationing by price

Amy McCormick Diduch

International Review of Economics Education, 2021, vol. 36, issue C

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.

Keywords: Normative shortages; Non-price rationing; Step demand functions (search for similar items in EconPapers)
JEL-codes: A2 D63 I31 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ireced:v:36:y:2021:i:c:s147738802030027x

DOI: 10.1016/j.iree.2020.100200

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