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COMMODITY EXCHANGE: A financial market that trades the ownership of various commodities, such as wheat, corn, cotton, sugar, crude oil, natural gas, gold, silver, and aluminum. The two biggest commodity exchanges in good old U. S. of A. are the Chicago Board of Trade and the Chicago Mercantile Exchange. Unlike, let's say a grocery store where commodities physically trade hands, commodity exchanges trade only legal ownership. This is much like a stock market, which trades the ownership of a corporation, but leaves the factory at home. Commodity markets offer two basic sorts of trading -- spot (immediate delivery of a commodity) and futures (delivery of a commodity at a future date).

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RATIONING:

The distribution or allocation of a limited commodity, usually accomplished based on a standard or criterion. The two primary methods of rationing are markets and governments. Rationing is needed due to the scarcity problem. Because wants and needs are unlimited, but resources are limited, available commodities must be rationed out to competing uses.
Rationing is the process of distributing a given amount of goods or services among competing users. It is largely synonymous with resource allocation. The term often arises in everyday use when a basic necessity, like food or gasoline, has a sudden temporary shortage. Society then faces the task of allocating, or rationing, this newly limited amount.

Rationing, however, is an ongoing process. All goods, services, and resources with limited quantities that fall short of desired uses must be rationed. Because, such rationing is an ongoing process, it seldom gains much public notoriety.

Suppose, for example, that imports of petroleum from other countries suddenly decline, which then limits the availability of gasoline. Society is faced with how to allocate the existing quantity of gasoline. A lot of people want limited amount of gasoline. This is exactly the type of event that brings the term rationing to the forefront of public discourse.

However, even during periods when gasoline appears to be abundant, the quantity is still limited. Everyone cannot have all that they want. Rationing takes place. But this rationing is not particularly newsworthy. It is handled by the day-to-day economic activity of market exchanges.

All About Scarcity

Rationing is a direct consequence of the scarcity problem. Society has limited resources and unlimited wants and needs. As such, it must decide how the resources are used. It must decide who gets what. It must ration limited quantities of the resources.

Markets and Governments

Society has developed two primary methods of rationing, or allocating, limited resources, goods, and services--markets and governments.
  • Price Rationing: Markets allocate commodities through price rationing. If the quantity of a given commodity becomes increasingly limited, then the price rises. Only the buyers most willing and able to buy the commodity, and pay the higher price, obtain the good. The limited quantity is automatically rationed to the highest bidder.

    While price rationing is most obvious in a market with an increasingly limited quantity and a suddenly rising price, it is the standard function performed by all markets. Markets ration commodities through prices.


  • Regulatory Rationing: Governments allocate commodities through what can be termed regulatory rationing. That is, governments pass laws determining who receives what. Any number of criteria can be set for regulatory rationing. For example, each person might receive an equal share or some might receive more based on a determination of need.

    Regulatory rationing is often used when governments decide that price rationing does not work properly. In particular, a government might deem that the sudden price increase of an essential good like food or gasoline creates undue hardships for the poor. As such, they might establish a system for rationing the commodity using coupons, price ceilings, or some other mechanism that does not involve higher prices.


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Recommended Citation:

RATIONING, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: July 21, 2024].


Check Out These Related Terms...

     | price rationing | resource allocation | voluntary exchange | involuntary exchange |


Or For A Little Background...

     | equity | incentive | exchange | market | price |


And For Further Study...

     | government functions | distribution standards | allocative efficiency | shortage | auction | ownership and control | price ceiling | utility analysis | short-run production analysis | elasticity |


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