Rationing Systems

Rationing Systems is just a fancy name for the process through which people go through to produce goods and services. It is governed by the basic economic questions.

There are 3 basic economic questions any producer must ask before production.

• WHAT should be produced and in WHAT quantities?
• HOW should they be produced? (what combination of factors of production)
• WHO is the goods produced for? (price levels, who is able to afford it, how the price allocates goods in a "fair" way.

Rationing Systems are either known as a Free Market Economy or a Centrally Planned Economies. Markets with features of both economies are classified by the collective term of Mixed Economics. In each form of market consumers, producers and/or the government decides the answers to the basic economic questions.

In a Free Market Economy all decisions are made by the private sector or consumers. Demand and supply is used to set wages, prices and determine what goods and services are produced and for whom.

There are normally few cases of surpluses and shortages as it is in the best interest of firms to provide what consumers demand. This is to maximise profits, this will be studied in greater depth in Theory of the Firm.

Centrally planned economics are economies for which the basic economic questions are answered by the government, they arrange prices, sets wages and arranges for the production of different types of goods and services. The economy and factors of production are collectively owned by everyone. There is supposed to be a more equal distribution of wealth.

In a Mixed Economy the public sector are the firms, businesses and industries the government controls. The private sector consists of firms and businesses that entrepreneurs control and make decisions for. The government tends to decide the production of merit goods and public goods while the private sector decides the production of consumer goods and services.

In reality all economies are mixed economies.

Transition Economies are economies which are changing from being planned economies to a more market orientated economy. These economies are often developing and have improving demographic trends and health and educational development. There is also more freedom and an increase in the status of women.