Question

Scarce water and population boom leads California to​ "perfect drought"

As the summer heats​ up, sprinklers that make southern California habitable might be banned. Melanie​ Winter, of the​ LA-based River​Project, reported that LA needs to conserve rain water rather than channeling it into the sea and make the city less dependent on water from the Colorado River.

​Source:

The

Guardian​,

June​ 25, 2007

In​ 2007, is water allocated in the social interest or​ self-interest?

What allocation method would be more efficient than banning​ sprinklers? Explain.

If the water market has no government​ intervention, water is allocated in the​ ______.

A.

neither the social interest nor the​ self-interest

B.

​self-interest only

C.

social interest only

D.

social interest and​ self-interest

Allocating water by​ _______would be more efficient than banning sprinklers because​ _______.

A.

market​ price; at the market equilibrium marginal benefit equals marginal cost

B.

sharing​ equally; everyone gets the same amount of water

C.

​first-come, first-served; those who have the most need for water would be willing to line up

D.

​lottery; there is no way to distinguish among potential water users

Answer 1

Banning the sprinklers will not solve the problem of water crisis especially when there is an upcoming summer. We can see that banning is not in the social interest of people because this will make the place less habitable. In case market is created for water distribution then the marginal benefit and marginal cost will create an efficient out come without the involvement of the government. It will be better than banning the sprinklers. Select option D

In this manner the market price will result in a far better outcome because then the efficiency will be increased as the marginal cost and marginal revenue pricing will determine the optimum quantity of water. Select option A.