Water Water Everyhwhere

The article, "Water, Water Everywhere Nor Any Drop to Drink?" takes a look at the effect of water meters on water usage. At the beginning of the article Miller documents that the supply of water is not keeping pace with the demand. He states that conservationists fear that continued demand at this rate of water usage will increase toxins in the water supply and deplete water sources.

On the other hand, the economic analysis of this concern is not as pessimistic. The analysis of water is looked at the same way other scarce resources are viewed. This "requirement approach" assumes that regardless of the price charged for water, the quantity demanded of water will remain the same. Therefore, it is assumed that the demand for water in the short run and the long run is zero; the quantity demanded will remain the same regardless of price. (Figure 1)

Economists believe that water meters would help solve the problem of water shortages. They provide evidence that with meters in place, the quantity of water demanded would decrease. A study performed in Boulder Colorado compared water usage with a flat rate system (figure 2) which charges consumers a flat rate for water no matter how much is consumed versus a water metered system (figure 3) which charges consumers additional money for using more than a minimum quantity. This means that there is a price tag placed on the marginal unit of water used for every acre-foot of water consumed over the minimum level.

From the study on water metering in Colorado the data states that the quantity of water demanded is a function of the price of water charged. It shows that with the water metering system in place the quantity of water demanded is lower than before metered water was in place. This proves that long run price elasticity of demand for water is greater than the short-run price elasticity. This disproves that the demand for water in the short and long run is zero. Water is in fact