Introduction to the Economics of Water Resources: An International Perspective

By Stephen Merrett | Go to book overview

CHAPTER FOUR

Effective demand and the price of water

4.1

Introduction

Chapters 2 and 3 concerned themselves exclusively with supply. The time has come to focus on the demand-side of hydroeconomics. The consumption of fresh water is most conveniently analyzed from the point of view of the three large battalions: households, farmers and industry. By “industry” is meant, here, all producers of goods and services in the economy other than within the family and within agriculture. So, industry includes, for example, an enterprise manufacturing nitrogen fertilizer, a company generating electricity, the head office of a banking group, a publicly owned rail network, a local hospital, a newsagent…and so on and so forth.

Personal and household needs for water are discussed at length in the box on the next page. In agriculture and industry the issue is analytically simpler. In both cases, water is a raw material required for the production process. In farming, water is a biological necessity for the growth of plants and the raising of livestock. In industry, water fulfils a multiplicity of functions, including cleaning, cooling and power generation.


4.2

The concept of effective demand

At this juncture, it is appropriate to highlight the distinctions between three concepts of water use. The first of these is the need for water, already referred to above. Debates on need concern why human society finds useful or derives some form of satisfaction from a commodity. The analysis here is primarily textual rather than quantitative. Economists have no unique expertise in need analysis: it is also a field for the philosopher, the sociologist, the psychologist, the market researcher and-in the case of water-for the biologist, the agronomist and the industrial consultant (Gough 1994).

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