During a particularly dry summer, officials in Tucson, AZ worrythat their existing water supplies are not large enough to meetresidents’ basic needs and they begin to discuss measures forreducing the city’s water consumption. Residential water useconsists broadly of “indoor†use (drinking, cooking, bathing,laundry, etc.) and “outdoor†use (watering grass, washing cars,filling up swimming pools, etc.). The city, being reluctant toraise water rates, wants to place a ban on outdoor water usebecause using water in this way seems less “essential.†As aneconomist, you wonder whether it might be better to increase waterprices and allow residents to decide for themselves how to allocatewater across different uses. To make a more formal case, you obtaindata on Tucson’s water demand in each sector (indoor and outdoor)and decide to calculate the deadweight loss associated with thisoutdoor water ban.
You will find thatdemand for “indoor†water (???) and “outdoor†water(????) are given by
? = 150 −3??? and ? = 20 − 0.2????
1. Compute the deadweight loss ($/day) associated with the banon outdoor water use. (To find this number, you can use figure likethe one shown below.)
2. What is the price ($/1,000 gal.) that Tucson should charge tobring the city’s total residential water consumption down to?̅?
