Water Supply and Economics in the Real World

1. Water SupplyandEconomics in the Real World How does scarcity of a commodity affect supply and demand in the real world?

2. What if EWEB didn’t have enough water for everyone to use? • How would this affect supply? • How would this affect demand? • What about market price? • How will we, as a community, conserve? • What sacrifices will we have to make? • What businesses will be affected and how?

3. First, let’s define some terms. • Supply:Quantity of goods or services offered for sale at all possible prices in a market. • Demand: Combination of desire, ability, and willingness to buy a product. • Scarcity: Fundamental economic problem facing all societies that results from a combination of scarce resources and people’s virtually unlimited wants. • Commodity: A good or service that is exchanged for money, for example an Xbox 360 or Sony PlayStation, cell phone, milk, cheese, clothing, etc.

4. “There is No Such Thing as a Free Lunch” • Why is scarcity a universal problem? • Because People all over the world need goods and services produced with limited resources. • We live in a world of relatively scarce resources so we must make wise economic choices. • Figure 1.1 presents 3 basic questions we must answer. In doing so, we make decisions about the ways our limited resources will be used. • What to produce? • How to produce? • For Whom to produce?

5. The Law of Demand in the Marketplace • For practically every product or service, higher prices are associated with a smaller amount demanded. Lower prices are associated with larger amounts demanded. • Example: If a PS3 is $600 when it comes out, fewer people would buy it. If the price was to drop to only $300, many more people would buy the product. • The higher the demand, the more $$ you can charge. • Sony knew the PS3 was in high demand so they knew they could get away with charging a lot. As time goes on, they know they must lower the price to keep consumers interested and allow people with less money be able to afford it. • Look at the Demand curve at right • Notice as price decreases, demand increases. • As price increases, demand decreases.

6. Law of Supply in the Marketplace • Firms will produce and offer for sale more of their product at a high price than at a low price. • Example: Imagine you are babysitting, or mowing the neighbor’s lawn for money… • You are now the supplier! • The higher the pay, the more work you are willing to supply. If you’re getting $20 per lawn, you might mow all the grass in the area. If you’re only getting $5 per lawn, why waste any more time. • The opposite of the demand curve, the supply curve slopes upward to the northeast. Why? • Because the Law of Supply states that more will be offered for sale at high prices than low prices.

7. Economic Model andMarket Equilibrium • Table and graph to the right show supply and demand of CDs (I know you all have iPods but bare with me). • When prices are high, not many are purchased resulting in a surplus. • When prices are low, lots of CDs are purchased resulting in a shortage. • At what price does quantity demanded equal quantity supplied? • $15; that is where the market is in “equilibrium” – there is no surplus and no shortage.

8. How the Marketplace Finds Equilibrium • In graph A, the price is set too high for the market, thus the surplus, or excess supply. • In graph B, after making the price adjustment too low, demand rose significantly, thus the shortage, or excess demand. • Graph C shows the readjustment in price back up, causing another surplus. • Graph D shows how the market worked itself out and found equilibrium, where supply equals demand.

9. Drought Ensues! Water is in short supply. What happens now?! • Supply diminishes as scarcity rules. • Demand stays the same, and people want and need their water. • What now? How can we curb demand to avoid a shortage of serious proportions?

10. Pop Quiz • If you want to reduce the quantity demanded for a good, what do you do? • A. Raise the price of the good. • B. Lower the price of the good. • C. Get a skunk to spray the good. • D. None of the above. • Answer: Maybe A, maybe D • Definitely not B or C, well maybe C… Nahhh!

11. Looking at our options… • Looking at options A and B, look over our graph of the demand curve once again. • If the price goes up, demand goes down. • If the price falls, demand increases, so… • It looks like option A is correct from our quiz, B is absolutely wrong, C is ridiculous, so it must be A. Not so fast… • Purely economically speaking, A is the correct solution to the problem. Raise prices and people won’t demand to use as much water. • Less demand means more available supply which, in this case, equals conservation. • What other options do we have?

12. What if EWEB raised their price of water for everybody? Who is Affected by Higher Prices? • We are as general consumers of water. • Costs more to take showers, do the dishes, wash the car, water the lawn, etc. • Agricultural Farmers. • Think how much water they use to ensure healthy and substantial crops. • How would these businesses survive with such an increase in expenditures? • Farmers would raise their prices to offset an increase in their production costs. • The domino effect goes right to the grocery store, where prices would surge upward for any fruits and vegetables produced locally. • This might put Lone Pine Farms and others out of business. …it might be time to look at other options!

13. Progressive Tax Structure for Water Pricing. How much you pay for water would depend on how much water you use. The first hundred gallons of water you use would only cost $.05 a gallon, the next hundred gallons would cost $.10 a gallon, and so on. Business concerns with this option is similar to raising it flat for everyone; agriculture uses a lot of water. What about Lone Pine Farms? Voluntary water restrictions. EWEB could simply inform people of the seriousness of the problem and give them tips for water conservation. The honor system isn’t very productive when there are no tangible regulations. EWEB could prohibit outdoor water use altogether. Residents face stiff fines for outdoor water use. They are not allowed to wash their cars, water their lawns, fill their pools, or use any water outside of their house. Exempting agricultural farmers from this provision would be in the interest of everyone. Could put fines into place and advertise heavily with the media for people to watch out for and report abusers of the policy. Is one option better than another? Might a combination of options be a valid solution? What sacrifices will you make? Three More Options to Consider

14. What Would You be Willing to Do? • Take shorter showers? • Take fewer showers? • Not wash the car? • Not water the lawn? (I hate mowing it anyway!) • Turn the water off while brushing my teeth and shaving? • Not ask for water in restaurants? • Don’t wash my puppy dog as much (whine!)?

15. No Easy Solution… • A combination of policies should be implemented in order to maintain economic prosperity. • If prices are raised too much, the people won’t be able to afford the extra consumer goods that keep the economy thriving! • If farmers get taxed too much for the resource they need to prosper, we all suffer; at the grocery store, in restaurants, and the farms themselves are in danger of bankruptcy. • The honor system is not reasonable in and of itself, considering the ramifications of not conserving combined with continued drought. • After careful consideration, EWEB should implement…

16. A Little Bit ‘O Everything! • Raise prices progressively. • Figure the average water consumption per household, go 10% less than that, and any water used in excess of that mark will triple in price. Any amount used at or below that level will suffer no increase in price. • Fine for outdoor use. • Outdoor water usage in most cases is a want, not a need and therefore can be deemed not necessary until the situation improves. • Tips for conservation. • In the water bill, as well as media saturated coverage of ways we can all help conserve water. I listed ways I would sacrifice, others can too. • Agricultural Exemption. • Our economy is too important too mess with the food supply and risk destroying local agricultural suppliers. • Without local contributions from farmers, our economy would depend too heavily on out-of-state goods.

17. What’s Next? • Hope for rain and a good snowpack. • Follow EWEB’s policies which will lower consumer demand in the face of a scarce water supply. • How does this relate to a global scale? • Examine other parts of the world where water scarcity is a problem. Look for places with high demand and a restricted supply and apply the same principles. • Will these ideas work for Gaza and the West Bank? • Are wars over natural resources inevitable or can we do something to prevent such catastrophes. • How does this topic mesh with environmental protection and/or technology? • Could desalinization plants change the world concerning water resources? • How are economies around the world affected by future rationing of the water supply and what can be done about it?

18. Bibliography (APA Format) • Clayton, G. (2005). Economics principles & practices (Teacher wraparound ed.). Columbus, OH: Glencoe/Mcgraw-Hill. • Berk, R., LaCivita, C., Sredl, K., & Cooley, T. (1981). Water shortage : lessons in conservation from the great California drought, 1976-1977. Cambridge, MA: Abt Books. • Annenberg Media Learner.org. (n.d.). Economics U$A. Retrieved August 12, 2007, from http://learner.org/resources/series79.html • National Council on Economic Education (n.d.). Econ edlink online lessons. Retrieved August 12, 2007, from http://www.econedlink.org/lessons/ • University of Nebraska Omaha (n.d.). Economics education web. Retrieved August 12, 2007, from http://ecedweb.unomaha.edu/lessons/lessonsK-5.cfm • University of North Carolina (n.d.). Great ideas for teaching economics. Retrieved August 12, 2007, from • http://www.unc.edu/depts/econ/byrns_web/GreatIdeas/GI-TOC.htm • The Higher Education Academy Economics Network (n.d.). Online learning and teaching materials. Retrieved August 12, 2007, from http://www.economicsnetwork.ac.uk/links/othertl.htm • Presentation By: Adam Walker