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1. Economists often say that prices are a rationing mechanism. If the supply of a good falls, how do prices ration these now-scarce goods in

1. Economists often say that prices are a "rationing mechanism." If the supply of a good

falls, how do prices "ration" these now-scarce goods in a competitive market?

2. Is the "rationing" achieved by the price system efficient or inefficient? Why?

3. During times of crisis - such as during a hurricane - the government often prevents

producers from raising the prices of certain goods including batteries, water, and gasoline.

Can prices then serve as a "rationing mechanism"? Does this increase or decrease

economic efficiency? Why?

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