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Case Study: Water Conservation Policy Group C Ritesh Khadka Ruby Maskey Sandeep Shrestha Subarna Budhathoki
Overview Summary
Of The Case Discussion Questions Recommendation
Summary Of The Case
Deficit in water supply in USA and Canada
USA facing drought conditions in 2003 Environmental authorities concern over Water Conservation Proposed “pricing” as stimulate conservation
a
means
to
Estimated Price elasticity of demand for water : Households:
-0.2 to -0.4
Business Users: -0.5 to -0.8 Demand for Household Users (More Inelastic)
Price (P)
Demand for Business Users (Less Inelastic) P1
P0
Q1 Q0
Q2 Q3
Quantity (Q)
Figure: Demand Curve of Water Consumption for Household and Business Users
Consumers in Different Pricing Systems Pricing System
Percentage of Consumers U.S.A
Canada
Flat Rate
23
43
Declining Rate
-
12
Metered
77
45
Discussion Question 1: How do you expect the price-elasticity of the residential demand for water to vary with the total annual consumption of the household?
Variation of Price Elasticity with Total Annual Consumption Price/ ’000 liters in Individual dollars($) household consumption in liters 10 10,000
Price Elasticity
11
9,800
-0.20
12.1
9,595
-0.21
13.31
9,355
-0.25
14.64
9,074
-0.30
-
Discussion Question 2:
Who benefit relatively more from a flat fee? Poor or rich households?
Relative Benefit between Rich and Poor Economic class
Rich
Charge in Total Charge Dollars Consumptio per unit n (liters) per month 10 20,000 0.001
Poor
10
10,000
0.0005
Discussion Question 3: Considering that a large proportion of residential users face a flat charge or even decreasing unit prices, do you think that the price-elasticity of residential demand is under or overestimated?
Consumers in Different Pricing Systems Pricing System
Percentage of Consumers U.S.A
Canada
Flat Rate
23
43
Declining Rate
-
12
Metered
77
45
Pricing System
Percentage of Consumers (supposed) U.S.A
Canada
Flat Rate
62
57
Declining Rate
-
18
Metered
38
25
Discussion Question 4: What are the implications of your answer in question 3 for raising prices as a conservation policy?
Implications Not very effective
Higher proportion of flat charge or declining rate users more inelastic demand
Recommendations Flat Rate subscribers need to be shifted to Metering Fixation of maximum consumption level per household
Overview Summary
Of The Case Discussion Questions Recommendation
Summary Of The Case
Deficit in water supply in USA and Canada
USA facing drought conditions in 2003 Environmental authorities concern over Water Conservation Proposed “pricing” as stimulate conservation
a
means
to
Estimated Price elasticity of demand for water : Households:
-0.2 to -0.4
Business Users: -0.5 to -0.8 Demand for Household Users (More Inelastic)
Price (P)
Demand for Business Users (Less Inelastic) P1
P0
Q1 Q0
Q2 Q3
Quantity (Q)
Figure: Demand Curve of Water Consumption for Household and Business Users
Consumers in Different Pricing Systems Pricing System
Percentage of Consumers U.S.A
Canada
Flat Rate
23
43
Declining Rate
-
12
Metered
77
45
Discussion Question 1: How do you expect the price-elasticity of the residential demand for water to vary with the total annual consumption of the household?
Variation of Price Elasticity with Total Annual Consumption Price/ ’000 liters in Individual dollars($) household consumption in liters 10 10,000
Price Elasticity
11
9,800
-0.20
12.1
9,595
-0.21
13.31
9,355
-0.25
14.64
9,074
-0.30
-
Discussion Question 2:
Who benefit relatively more from a flat fee? Poor or rich households?
Relative Benefit between Rich and Poor Economic class
Rich
Charge in Total Charge Dollars Consumptio per unit n (liters) per month 10 20,000 0.001
Poor
10
10,000
0.0005
Discussion Question 3: Considering that a large proportion of residential users face a flat charge or even decreasing unit prices, do you think that the price-elasticity of residential demand is under or overestimated?
Consumers in Different Pricing Systems Pricing System
Percentage of Consumers U.S.A
Canada
Flat Rate
23
43
Declining Rate
-
12
Metered
77
45
Pricing System
Percentage of Consumers (supposed) U.S.A
Canada
Flat Rate
62
57
Declining Rate
-
18
Metered
38
25
Discussion Question 4: What are the implications of your answer in question 3 for raising prices as a conservation policy?
Implications Not very effective
Higher proportion of flat charge or declining rate users more inelastic demand
Recommendations Flat Rate subscribers need to be shifted to Metering Fixation of maximum consumption level per household
