An example of a good or service that is currently allocated to buyers using the price mechanism is rice. Rice is a good that is considered scarce, a good that will go to people that are willing to pay more for it based on need or want. A good example of the price mechanism in effect is it rice is during the Thailand floods in early 2011. With floodwaters depleting almost one fourth or 25 million metric tons of rice crop that year, the price of rice nearly doubled, yet people continued to pay for it. Thailand exports nearly ten million tons of rice per year, and is the world’s largest rice exporter. When prices doubled, there was a fear of scarcity and people here in California felt the price increase, and started to buy all of the rice that they could in fear of further price increases.
I am all for society using the price mechanism in most cases because the price mechanism, though not perfect, is a way to distribute goods based on need. If someone feels they need rice more than someone else, they are generally willing to pay more - the price mechanism comes into effect and at time sellers have the ability to profit. It also helps in the case of natural disasters. Take Thailand for example, with rice prices going up, and people still buying rice, it gave an incentive to farmers in Thailand to repair their fields and resume production the next year. If not, there would be a lack of production, and price would later increase even more. Still there are some examples where the price mechanism, and a price rationing system would not work or fit so well.
An example of a good or service that is not allocated to buyers using the price mechanism is the New York City Marathon. This past year there were 140,000 applicants, and only 47,000 spots. What officials did was lottery off positions to these 47,000 out of 140,000 applicants. Still, there were some people that were guaranteed entry. This included those with a qualifying fast marathon or half marathon View More »