This paper discusses the demand and supply of water.
A discussion of the demand and supply of water market as well as the inefficiencies of water market as natural monopoly. This paper emphasises on methods to regulate natural monopoly and explains the few ways in which government should regulate natural monopoly. It discusses two distinct types of government policy, marginal cost pricing and average cost pricing. It also identifies the benefits and costs of each pricing method.
“Water is one of the most precious natural resources. Human beings are now becoming increasingly aware of the importance of water to their survival and its limited supply, especially in such a dry continent as Australia. Water market is not static as both exogenous (outside the market) and endogenous (inside the market) effects tend to result in shifts and movements of both the demand and supply curves (Materano and Atkinson: 1996). There are many factors that influence the quantity demanded and quantity supplied in the water market, not only the prices. Supply and demand are the forces that make market economics work. The basic model of supply and demand is the workhorse of microeconomics (Pindyck and Rubinfeld: 1989) because they determine the quantity of each good produced.”