Prices serve a rationing function. When quantity demanded exceeds quantity supplied, prices rise to alleviate the shortage. When quantity supplied exceeds quantity demanded, prices fall to alleviate the surplus. However, when prices are inflexible, shortages and surpluses persist. Other rationing mechanisms must develop.
- Using demand and supply analysis, describe a specific situation where a shortage occurred. Why were prices unable to adjust in this market?
- Combining what you learned from your readings as well as from the video clip, what other rationing functions could develop to alleviate the shortage?
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