98 PART • Producers, Consumers, and Competitive Markets for this relatively high income group, making additional money does not improve a person’s ability to enjoy leisure time and good health—all of which factor into one’s overall well-being.11 These results offer strong support for the modern theory of economic decision making that underlies this text, but they are still being carefully scrutinized For example, they not account for the fact that satisfaction tends to vary with age, with younger people often expressing less satisfaction than older folks Or we can look at this a different way Students have something positive to look forward to as they get older and wiser A second issue arises when we compare the results of happiness studies over time Per-capita incomes in the U.S., U.K., Belgium, and Japan have all risen substantially over the past 20 years Average happiness, however, has remained relatively unchanged (Denmark, Germany, and Italy did show some increased satisfaction.) One plausible interpretation is that happiness is a relative, not absolute, measure of well-being As a country’s income increases over time, its citizens increase their expectations; in other words, they aspire to having higher incomes To the extent that satisfaction is tied to whether those aspirations are met, satisfaction may not increase as income grows over time Rationing In times of war and other crises, governments sometimes ration food, gasoline, and other products, rather than allow prices to increase to competitive levels During World War II, for example, individual households in the United States were limited to twelve ounces of sugar per week, one pound of coffee every five weeks, and three gallons of gasoline per week Rationing has often been used with respect to water in periods of drought Within the United States, California has often faced water rationing for both household consumption and agricultural production Outside the United States, countries such as Rwanda, India, Pakistan, and Egypt have imposed water rationing as recently as 2010 Nonprice rationing is an alternative that some consider more equitable than relying on uncontested market forces Under a market system, those with higher incomes can outbid those with lower incomes to obtain goods that are in scarce supply However, if products are rationed through a mechanism such as the allocation of coupons to households or businesses, everyone will have an equal chance to purchase a rationed good To understand how we can analyze rationing using the basic consumer model, let’s use the gasoline rationing that occurred during 1979 as an example Following the 1979 Iranian Revolution, oil prices jumped, but the United States imposed price controls that prevented increases in the price of gasoline, resulting in shortages Gasoline was allocated by long lines at the gas pump: While those who were willing to give up their time waiting got the gas they wanted, others did not By guaranteeing every eligible person a minimum amount of gasoline, rationing can provide some people with access to a product that they could not otherwise afford But rationing hurts others by limiting the amount of gasoline that they can buy.12 We can see this principle clearly in Figure 3.22, which applies to a woman with an annual income of $20,000 The horizontal axis shows her annual consumption of gasoline, the vertical axis her remaining income after purchasing 11 Daniel Kahneman and Angus Deaton, “High Income Improves Evaluation of Life But not Emotional Well-Being,” PNAS, Vol 107 (September 21, 2010): 16489–16493 12 For a more extensive discussion of gasoline rationing, see H E Frech III and William C Lee, “The Welfare Cost of Rationing-by-Queuing Across Markets: Theory and Estimates from the U.S Gasoline Crises,” Quarterly Journal of Economics (1987): 97–108