Download Understanding Water Demand and Market Equilibrium: Key Concepts in Agricultural Economics and more Study notes Agricultural engineering in PDF only on Docsity! Chap. 2 – Key Elements Supply natural→retail Demand people & firms Efficiency four initial types MNBs for retail water Demand Theory People People derive satisfaction from their use of water. Yes, they sustain “life” with water too, but life is not typically relevant “at the margin” where efficient allocation is determined. except, maybe, in undeveloped-country situations Demand Theory Self-interested, utility-maximizing behavior leads people to apply limited water to their most valued uses cut back on their less-valued uses as water price increases 1 2 3 AgEc 606 (day 3): 1/27/2009 Demand Theory Meaning that: behavior can be mapped via a demand curve or function 100 200 300 400 2 4 6 8 10 Water Service (S=0) Water & Wastewater Service (S=1) $/kgal Figure 4.1 Texas Community Water Demand Functions D1Jan D1Aug D0Aug D0Jan Gallons per Person per Day from a 2006 report on >700 Texas communities Demand (From both sources) So, “Demand” results from self-interest isn’t a single number takes the form: w = D(p; other things) is invertible to MB = D-1(w; other things) w° w p° p w=D(p) 4 5 6 AgEc 606 (day 3): 1/27/2009 Working with MNBs 0 10000 20000 28056 40000 50000 w 1.88 3 6 9 12 p 1.88 3 6 9 12 p MNB1 MNB2 λ = What happens when planning is based on λ = 0? What happens when mb↑ ? Working with MNBs This sort of analysis is possible only when we’ve used mc to adjust mb to an equivalent type/location of natural water. Natural Water Retail Water differential processing add ag & urban on board continuing to handle diff. processing only Note: mnb of retail is mb of natural (rival and no reuse) 13 14 15 AgEc 606 (day 3): 1/27/2009 What if reuse is practical? What if fairness is important? What if uses are nonrival? What if conservation is important? Polishing Reuse across Users Social Problem Max [NBA(wA) + NBB(wB)] s.t. W - wA + 0.2wA ≥ wB Max [NBA(wA) + NBB(W-0.8wA)] or ⇒ MNBA + MNBB • (-0.8)=0 20% 100% 100% B A Return flow exampleW Reuse across Users 10000 20000 32407 40000 50000 w 0.58 1.00 1.88 p 0.77 1.00 1.88 p MNB1 MNB1/(1- R') MNB2 16 17 18 AgEc 606 (day 3): 1/27/2009 Nonrival Users If water is truly scarce, nonrival users don’t limit or harm each other’s use, but as a group their use is rival to other uses. Examples? Because nonrival uses don’t detract from one another, their MBs are additive. If rival, demand sum is wA + wB . If nonrival, demand sum is MBA + MBB . When Fairness is a Issue Maximizing sum of rivaling NBs is suspect when society is concerned about separate NBs. So it’s appropriate to explore tradeoffs as in: NB1 NB2 When Fairness is a Issue w $ MNB1 MNB2 perhaps a less developed country with 1 being multinational mining companies and 2 being summed small irrigators W Outcome? 19 20 21 AgEc 606 (day 3): 1/27/2009
