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Quang Vu
ECO 270
Dec 07, 2012
Economic Concept
Economic theory about water
In our life, water is the most important supply that influence to every activity in our life every day. Therefore in the economic illustration I think water has economic value only when its supply is scarce relative to its demand. Whenever water is available in unlimited supply, it is free in the economic sense. Scarce water takes on economic value because many users compete for its use. In a market system, economic values of water, defined by its price, serve as a guide to allocate water among alternative uses, potentially directing water and its complementary resources into uses in which they yield the greatest total economic return. In dry places, economic and population growth create situations where water is economically scarce. In these places, water institutions, laws, projects, policies, and programs are designed to provide for maximum benefits from the use of scarce water. Not only is water itself scarce, but money, manpower, and other resources required to develop, allocate, transport, and purify water are scarce. Competing claims for money and other resources and the economic and political difficulty of increasing taxes to pay for water programs constrain the resources available for water programs. While the political process always determines which programs are undertaken, there is also a need for more general economic standards by which competing water policies and programs can be gauged. The economic principles underlying water policy decisions rest on the ideas of benefit and cost. For example, releasing water from a dam to increase stream flow by 100 cubic feet per second may add 100 units of endangered species habitat, which, for example, might be worth $3 each. The benefit of this policy will 100x$3=$300. According to the basic rule of benefit maximization, in which increasing the total value of scarce resources is presumed desirable, this action should be undertaken if...
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