Transcript Walker Student Sample

Water Supply
and
Economics in the Real World
How does scarcity of a commodity
affect supply and demand
in the real world?
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?
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.
“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?
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.
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.
Economic Model and
Market 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.
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.
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?
Pop Quiz
• If you want to reduce the quantity
demanded for a good, what do you do?
–
–
–
–
A.
B.
C.
D.
Raise the price of the good.
Lower the price of the good.
Get a skunk to spray the good.
None of the above.
• Answer: Maybe A, maybe D
– Definitely not B or C, well maybe C… Nahhh!
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?
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!
Three More Options to Consider
• 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?
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!)?
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…
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.
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?
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