10/16/2009

Water Demand Curve Shifting to the Right

I recently read an article that explained the price of water and the effect it has on demand. It explains that at low prices, consumers will not pay attention to the consumption of water and will only determine what they will use it for, not how much they will use. Or in economic terms, it remains inelastic at low prices. Though the article was related to agriculture, I think it applies well to what is going on in St. George. As most people know, water consumption and conservation are a hot topic right now. The Lake Powell pipeline is in the works to keep up with the growth and consumption, but it may not be enough. Buildings continue to be erected and grass and other water features remain part of the landscaping. This continued trend, along with all of the golf courses and extremely hot summer weather don’t help the issue of conservation.
Until there is a substantial rise in the price of water, the demand curve will continue to shift to the right while the quantity will level off and force the price to go up.
I will bet that the rise in price will cause more “natural” and gravel landscaping instead of grass and water features that consume that majority of water. This will cause the demand curve to move back as people will be persuaded to try alternative routes to high water consumption.

Water Article

3 comments:

Rebecca said...

Cool topic. I think the argument has a fallacy, however, in that water is not priced in equilibrium according to demand.

In a classic model as the demand shifts to the right and supply remains fixed, the equilibrium or price point would move upward along the supply curve increasing price.

What we have are fixed prices by some water or taxing authority. Prices are raised or lowered (yeah, right) after the fact on some periodic frequency (yearly, maybe) and in anticipation of future use and growth.

I think locally we have a graduated system for residential water use where 0 to 15,000 gallons costs say, $0.11 per gallon. 15,001 to 20,000 gallons increase in price to $0.12 per gallon and so forth.

The pricing does discourage excessive use but only after the factors combine to create a whammy bill on property owners so I think that would function somewhat like a classic demand-supply model.

Brooklyn said...

I think it all depends on where you get your water from. Some people get water from those in a community with water rights and that means they can charge what they like for the water you consume from them.

No matter what though I think if you make people feel the hurt in their wallets it will obviously make them consider a dry scape or more efficient washers and fixtures.

Dr. Tufte said...

My comment is very limited because I am a paid consultant on the Lake Powell pipeline.

The one thing I think I would add is that a general problem throughout the west is that water is not priced the same for all uses: generally cheaper for agricultural and industrial uses, and more expensive for residential uses. Fix that and some problems will take care of themselves.