Price as a Rationing Device

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Price as a Rationing Device 
We shall discuss more fully later the role of price in a modern economy. We may only say here that price is a signal to the producers to expand or contract production and a warning to the consumers as to the possible shortage of the commodity or signal to the possible glut. Also, price reflects marginal social value of the commodity, But the function that we see price performing here is of a rati lUng device. In a market period  a very short period), the supply is fixed. Price, therefore, rations or di tributes the available supply among the consumers who are willing and able to pay the price equal to, or more than, the equilibrium price.

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Price as a Rationing Device