2. SITUATION UNDER CONSIDERATION
Rationing of goods by the government
{under what conditions }
Act as a binding or a constraint on
consumer choices
And how it effects consumer welfare
3. RATIONING
By definition , it is a fixed portion, especially an
amount of food allotted to persons in military
service or to civilians in times of scarcity at a
lower price.
Rationing is an artificial restriction of demand.
Setting a lower price , in case of shortage,
would prevent market price to drive very high.
As high prices, especially in the case of
necessities, are undesirable with regard to
those who cannot afford them.
4. INDIFFERENCE CURVE
An indifference curve captures combinations
of commodities that yield the same level of
satisfaction to the consumer.
The consumer is , therefore , indifferent
amongst these combinations.
5. INDIFFERENCE CURVE AND RATIONING
The indifference curve method is used to
make clear the problem arising from diverse
systems of rationing.
Rationing comprises of setting specific and
equal quantities of commodities to each
individual irrespective of the fact whether one
receives more or less satisfaction from it.
6. CONDITIONS MAKING RATIONING A
CONSTRAINT ON CONSUMER CHOICES
Price
Income
Goods of necessities
Non availability of goods rationed or their
substitutes
Consumer satisfaction
7. EFFECT OF RATIONING ON CONSUMER
BEHAVIOUR
Level of satisfaction
y
Commodity A IC2
IC
IC1
o Commodity B x
8. EXAMPLE
A consumer requires 4 kg. of wheat but is unable to buy it as he
only has Rs. 40 and wheat is Rs.15 per kg.
Govt. rations wheat at Rs. 10 per kg. and limits quantity to 4 kg.
per head.
Consumer will be able to buy in accordance with his requirement.
Higher level of satisfaction
A consumer requires 10 kg. of wheat and has the income to buy
it.
Govt. rations wheat at Rs. 10 per kg and limits quantity to 5 kg.
per head.
Consumer will be unable to buy in accordance with his
requirement.
9. CONTI….
Shift in budget line
y Example:
A person has only Rs. 30
p1 and rice is Rs. 15 per kg
p
Govt. rations its price at Rs.
10 per kg and quantity at 4
kg
He earlier could buy only 2
o p p1 x kg but now will be able to
buy 3 kg
(real value of income
changes)
10. RATIONING IN CONSUMER WELFARE
Price control
Real value of income increases
Budget space increases
Availability
Level of satisfaction changes
11. The other, rather liberal scheme is to allow
an individual more or less quantities of the
rationed commodities according to his liking.
It can be demonstrated with the help of
indifference curve study that the last scheme
is definitely better and beneficial than the
former.
