Question

Effects of rationing and hoarding

Answer 1

Answer:

Rationing distorts consumer behavior since consumers cannot purchase their desired quantities at government controlled prices. Since consumers incur smaller than desired expenditures for rationed goods and services, rationing may lead to increased demand for other commodities that can be purchased freely.

Secondary economic effects result from hoarding. Hoarding is an increase in demand. In the short-run with supply fixed, the price of the hoarded good would increase. With every increase-in demand, the price of the hoarded good would continue rising producing inflation.