The rationing function of prices refers to the

Economics Dec 17, 2020

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The rationing function of prices refers to the power of prices to allocate scarce resources to the place they are needed most and can be most effectively used. For example, if the price of a car is low, then many people will buy cars to travel, run errands, or go on vacation. If the supply of cars decreases that will cause the price to increase. As a result of higher prices, those who need a car the most will still buy cars, but many who do not need the car as much will switch to other modes of transportation. The price, then, rations the lower number of cars to those who need them the most.

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