Question

1. Say the City of Calgary is considering imposing a regulation which requires the use of low-flow shower heads. They argue that producing clean water is costly for the city. Hence restricting use (effectively putting a quota on water use) reduces the costs to the city of supplying water and, if costs are lower, the price the city charges for each cubic meter of water can be lower. a. Is this justification sensible? Explain and illustrate graphically the possible inefficiency costs (deadweight loss) of imposing this regulation. b. What might be a better policy to restrict water usage?

Answer 1

The above solution of using low shower heads is good only if prices are not lowered which will save on water usages.

However considering lower shower flow people will consume less water and hence state government will receive lesser revenues than before which will create deadweight losses.Overall this will not make sense as it is creating dead weight loss.

Better policy to contain water usage is taxation policy on heavy usage which will restrict water usage and reduce wastages at the same increase government revenues and minimise any kind of deadweight losses.