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Environmental Economics > 12. Lecture 7 - Water Economics > Flashcards

12. Lecture 7 - Water Economics Flashcards

1
Q

Which one of the following is an example of demand-side water management?

A) Increasing water prices
B) Desalination
C) Building small dams
D) Building large dams
E) Expanded development of groundwater aquifers

A

A) Increasing water prices

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2
Q

Why might supply-enhancement strategies be problematic from a water conservation perspective?

A

Supply-demand cycles and reservoir effects.

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3
Q

Which price structure would most effectively promote water conservation?

A

Increasing block structure

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4
Q

Why is cost recovery a prerequisite for equitable and universal access to basic water supply?

A

Cost recovery is needed to prevent the free water dilemma.

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5
Q

What is the diamond-water paradox?

A

Water is essential for life and has a low value.

A diamond is not essential for life and has a high value.

How can it be that an essential resource like water has a much lower price per unit weight or volume than diamonds?

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6
Q

What is the concept of marginality?

A

What matters is the value of an additional unit of a good, regardless of the value of the previous unit

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7
Q

What may undo the diamond-water paradox?

A

When marginal water uses become essential uses.

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8
Q

Name 3 specific characteristics of water.

A
  1. Essential, needed for survival
  2. Finite
  3. Non-substitutable
  4. Mobile, fugitive, a flux
  5. A system
  6. Varying availability and quality
  7. Bulky
  8. Use may create externalities
  9. Various uses and users
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9
Q

Name 2 implications of the unique characteristics and uses of water.

A
  1. Everyone should have access to water for survival
  2. There is not only one water market
  3. The value of water differs between different uses
  4. We need to manage competing uses
  5. We need to take into account system-effects of water use
  6. We cannot trade water as any other good
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10
Q

What is more price elastic: water demand for drinking or water demand for laundry?

A

Water for laundry.

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11
Q

What is the main challenge of public water management?

A

Managing a scarce resource with competing uses.

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12
Q

Name 3 instruments of public water management.

A
  1. Quotas
  2. License to use
  3. Subsidies and grants
  4. Penalties
  5. User charges
  6. Tradable water rights
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13
Q

Name 2 primary goals of water pricing

A
  1. Economic efficiency
  2. Environmental sustainability
  3. Equity and affordability
  4. Generation of revenues and financial sustainability
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14
Q

Match the tariffs with the meanings:

  1. Flat tarrif
  2. Volumetric tarrif
  3. Tiered tariff
  4. Two part tariff

A. Rates that change depending on time or amount of use
B. Fixed payment
C. Fixed charge that is independent of the consumed amount and variable charge that depends on the consumed amount
D. Pay per use

A

1B - 2D - 3A - 4C

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15
Q

What is the free water dilemma?

A

Water provider will not be able to adequately maintain the system. Consequences: unsafe water for poor, while richer people can afford buying from other sources.

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16
Q

True or false: volumetric tariffs are more effective than flat tariffs in achieving water use efficiency

A

True.

17
Q

True or false: block tariffs or a stepped tariff system will never ensure universal access.

A

False.

Block tariffs or a stepped tariff system can ensure universal access:

  • Highest value use (essential water use) is priced lowest
  • Lowest value use (non-essential water use) is priced highest
18
Q

What does it mean when water demand exceeds supply?

A

That the price is too low.

19
Q

What are supply-demand cycles?

A

Increasing water supply enables higher water demand.

20
Q

What are reservoir effects?

A

Overreliance on reservoirs increases vulnerability.

21
Q

Name 3 conditions for well functioning water markets.

A
  1. Well defined and administered water rights embedded in law
  2. Exchange is easy
  3. Low transaction costs (administrative complexity, trading fees)
  4. Sales and water use is monitored and enforced
  5. Large number of potential buyers and sellers
22
Q

Define “water stressed”.

A

Term used for countries where freshwater supplies are between 1,700 and 1,000 cubic meters per person per year.

23
Q

Define “water scarce”.

A

Term used for countries where freshwater supplies are less than 1,000 cubic meters per person per year.

24
Q

Define “absolute water scarcity”.

A

Term used for countries where freshwater supplies are less than 500 cubic meters per person per year.

25
Q

What is virtual water?

A

Water embedded in goods or services, based on water used as an input throughout the production process.

26
Q

Name 3 ways to reduce water demand.

A
  1. Micro-irrigation
  2. Reuse of wastewater
  3. Adoption of water-conserving technologies
  4. Mandatory water use restrictions
  5. Education and information
  6. Innovative institutional design of common-property resources
27
Q

What are regulated monopolies?

A

Monopolies that are regulated by an external entity, for example through controls on price or profits.

28
Q

What is average-cost pricing?

A

A water pricing strategy in which price is set equal to the average cost of production (or equal to average cost plus a profit mark-up if the water utility is a for-profit entity).

29
Q

True or false: water demand is less elastic in summer than in winter.

A

False.

Water demand tends to be less elastic in winter months than in summer months. In the summer, more water use is for relatively nonessential purposes, such as irrigating lawns and washing cars. In the winter, a higher percentage of total water use is for more essential tasks, such as bathing and washing dishes.

30
Q

What is a uniform rate structure?

A

The price per unit of water is constant regardless of the amount of water used.

31
Q

What is increasing block structure?

A

The price per unit of water increases as the amount of water used increases. The price is constant within each block, but the price per unit is higher for successive blocks.

32
Q

What is decreasing block structure?

A

The price per unit of water decreases as the amount of water used increases.

33
Q

What are riparian water rights?

A

A system of water rights allocation based on adjacent land ownership.

34
Q

What are prior appropriation water rights?

A

A system of water rights allocation in which rights are not based on land ownership but on established beneficial uses.

35
Q

What is beneficial use?

A

A term used to refer to the use of water for productive purposes, such as irrigation or municipal supplies.

36
Q

True or false: administrative prices are more useful for the purpose of cost recovery, while market-based prices have a larger potential for signalling scarcity and opportunity costs.

A

True.

37
Q

Name one pro for auctioning water rights and one pro for trading water rights.

A

Auction:

  • Dealing with fewer people
  • More transparent
  • Buyers might pay a lower price
  • Lower transaction costs

Trading:

  • Sellers might get a lower price
  • More economically efficient because of better resource allocation, thus more social welfare
  • Might encourage monoculture

Environmental Economics (14 decks)

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