market-clearing prices. Storekeepers (and some ticket sellers) often
respond to excess demand by keeping goods “under the counter” and
selling only to customers of their own choosing. When sellers decide to
whom they will and will not sell their scarce supplies, allocation is said to
be by sellers’ preferences.
If the government dislikes the allocation of products by long line-ups or
by sellers’ preferences, it can choose to ration the product. To do so, it
creates only enough ration coupons to match the quantity supplied at the
price ceiling and then distributes the coupons to would-be purchasers,
who then need both money and coupons to buy the product. The
coupons may be distributed equally among the population or on the basis
of some criterion, such as age, family status, or occupation. Rationing of
this sort was used by Canada and many other countries during both the
First and Second World Wars, when the supplies of many products were
reserved for military purposes.
Black Markets
Binding price ceilings usually give rise to black markets. A black market
is any market in which transactions (which are themselves legal) take
place at prices that violate a legal price control.
Binding price ceilings always create the potential for a black market because a profit can be
made by buying at the controlled price and selling at the (illegal) black-market price.