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Rationing & Black Market Economies

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Presentation on theme: "Rationing & Black Market Economies"— Presentation transcript:

1 Rationing & Black Market Economies

2 The Problem of Scarcity
Scarcity - Limited quantities of resources to meet unlimited wants. If goods are scarce, they must be rationed. Rationing is a system of allocating scarce goods and services according to certain criteria. Ex. Physical prowess, public esteem, age, need, merit, willingness to pay money, etc.

3 Competition and Price Competition is the natural result of scarcity.
Individuals striving to meet the criteria used to ration goods. Price - society rationing on the basis of a willingness to pay money. Individuals will work to earn money and those that are able and willing to pay the price will receive the good.

4 Price as a Rationing Device
When goods are in short supply, consumers compete against each other to obtain the good. In a market economies the result of this competition is an increase in price; Price serves as an important rationing device in market economies and a signal for economizing. What happens when price controls are implemented?

5 Other Rationing Methods
When prices are fixed, an economy must develop another way to ration scarce resources: Need First come, first served Lottery, equal share for all Merit Can you think of any others??

6 What is a black market? Black Markets - A market consisting of all commerce on which applicable taxes or regulations are avoided. A black market can consist of either… Legal goods sold at illegal prices Illegal goods Black markets often develop when price controls are implemented

7 How do Price Controls Lead to Black Markets?
Effects of Price Ceilings: Demand by consumers will increase; Seller’s profits decrease; In order to maximize profits, sellers will reduce supply; Shortages result; Consumers who are willing and able to pay a higher price for the good will find a way to obtain it on the black market.

8 Black Markets cont… How do black markets affect the supply of goods?
Consumers who are willing/able to pay will move into the black market; Demand for the good will increase along with the black market price; Suppliers will divert more of the product onto the black market in order to make more money; Shortages will be exacerbated in the legal market.

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