A blizzard hits the St. Louis area and customers are lined up to purchase items they now need. Garrett announces that the store has decided to ration all types of water rather than raise prices in an attempt to prevent people from hoarding water. Another alternative allocation mechanism would be to raise prices, but they have opted instead for an authoritarian approach. As Garrett names the different products under rationing, we also get a list of substitute products which shows the range of product differentiation at the store.
Glenn approaches Mateo with a request to not award Mateo with employee of the month for a 6th straight month. Glenn recognizes that Kelly may want to transfer stores because she feels unappreciated. Glenn thinks that giving Kelly the award, she may feel better about her situation at the store. Pareto improvements mean no one is made worse off by an action, but Mateo points out that Glenn is taking something from him and giving it to Kelly. This redistribution is common with the use of taxes to redistribute income to others in a society. While not Pareto-improving, it can be used to improve equity.
A customer is looking for a particular coffee maker, but Cheyenne and Mateo tell him they can get another from the stock room if they are offered a bribe. If prices weren’t so low, there would probably be an adequate stock of items on the shelves. Cheyenne and Mateo try to initiate a black market transaction in response to this shortage.
As customers stand outside waiting for the store to open, one of them offers Mateo and Cheyenne $40 each to put aside one of the TVs that is on sale. Because prices are so low, there won’t be enough for all of the customers that want a TV, creating a shortage among the waiting customers. Having people wait in line helps allocate the items based on people’s willingness to spend time rather than money, but this man would prefer to have the item allocated through a black market transaction.
There’s a long line of customers hoping to get a flu shot, but there’s only one vaccine left. Jonah has been tasked with identifying which customer will get the last flu shot for the day. Jonah argues that it should go to the person who needs it most, which would be an argument based on equity. The next person in line believes that he should receive the shot, which could be an argument in favor of efficiency. Because of the low price, there appears to be a temporary shortage. Rationing and a lack of a market for price adjustments creates shortages and inefficient allocations. The store could raise the price of the last remaining few shot as an incentive to have others return tomorrow for the normal price.