Supply and Demand

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Given the diverse ways people have of purchasing water, for example, bottled water, faucet water, irrigation systems, and so on, and given the fact that rainfall provides free water, how do the laws of supply and demand explain these disparities in costs?

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The economics of water, except in countries where the governments subsidize costs to benefit agricultural sectors, do follow the law of supply and demand, and none of the examples provided – irrigation systems, bottled water, faucet water, and rainfall – obviate that basic fact.  Not all water is equal in quality.  Rainfall may be free, but it is neither plentiful enough in much of the world nor trusted enough in terms of quality to ensure its use a primary source of water in most households.  First, it must be collected: a difficult and costly task when done on the scale needed to supply large urban areas.  Second, because not every home, apartment, office building, etc., would have the luxury of maintaining its own system for collecting, processing and distributing water throughout the building – for example, to bathrooms spread around a building – substantial costs would be accrued constructing and maintaining the systems necessary to meet demand.  Third, as mentioned, more than a century of industrial and automotive pollutants have sufficiently contaminated the atmosphere that the purity of rainwater cannot be assured without some level of processing through costly treatment facilities.

The sources of water for which people are charged depending upon their consumption levels fall into these categories of purity and distribution requirements.  The explosion in demand for bottled water over the last 20 years is a direct outgrowth of concerns about contaminated water supplies, including lead and other metals that have proven toxic to humans if consumed in large-enough quantities.  Bottled water is usually subjected to processes designed to filter out contaminates.  In addition to the costs associated with that process, there are the usual costs associated with producing, packaging and shipping goods to market.  The cost of plastic bottles, while certainly not a lot, is nevertheless a cost that has to be passed on to consumers, as do the costs associated with the filtration processes.

Faucet water does provide the requisite quantity of water for most households in advanced industrialized countries.  Assuming, of course, that home plumbing systems are not contaminated with lead, then they do provide fresh drinking water, in addition to water necessary for bathing, toilet operation, and so on.  But, this water also goes through filtration and treatment processes to remove contaminates (and add fluoride).  Faucet water – that which is not directly connected to a well or nearby reservoir – goes through large subterranean pipes that had to be constructed and set in the ground and then distributed through a multitude of additional pipes to reach each home, restaurant, office building, etc.  Those pipes cost money, as do routine maintenance and emergency repairs when water mains break and flood neighborhoods.  So, the more water one draws from the city system, the more one is charged for water. 

Irrigation systems are inherently inefficient and costly.  Plus one runs into the same problem as with faucets.  While not intended for internal consumption, it is still water that needs to piped from a point of origin to a destination.  And, as with faucets, irrigation water follows the basic law of supply and demand.  In short, the sporadic supply of rainfall – which couldn’t be of much assistance to residents of arid regions, anyway – is insufficient to supply the needs of most people, especially when filtration systems are needed.

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