Wednesday, February 19, 2014

Water Pricing

One of the fundamental questions that the subject of economics explores is how to allocate (or distribute) goods and services in an economy efficiently (or where it creates the most value to society).  One could give goods and services on a first come - first served basis, or randomly let people buy and sell or give only to the "elite" or any number of different methods.  The key is efficiently, so that goods and services are distributed to where they are most valued.  To do this, prices are used as the allocating mechanism within a market.  Here is an interesting article on how to allocate a scarce resource (water) given that supply is not increasing and with increased population (i.e. shifting demand to the right) potentially shortages are likely to occur without a more efficient distribution method.

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