Rationing of Existing Apartments Price initially rises from P 0 to P 1 since it takes time to adjust the quantity of apartments supplied. Rationing is required because of scarcity. Scarcity means that our wants exceed our ability to meet them. Scarcity exists in all societies. Economic systems determine whose wants will be satisfied.
Higher prices provide motivation for increased production.
P 1 exceeds the supply price for Q 0 . Builders find it more profitable to build apartment complexes. The quantity supplied increases until a new equilibrium is reached. The desires of landlords and tenants are coordinated. Information, Motivation, and Rationing in a Command Economy Central Planning A government agency sets prices, production goals, and allocates production among state-owned firms.