Economics Questions Case Studies Example
In appropriative doctrine, the first user is protected against later arrival. The law applied here is first in use, first in right. The rights of the first person to use a scarce resource like water are protected and due to high demand, the first people to apply for water connection gets the first priority. This is connected to stochastic dominance where gamble A receives the first order stochastic dominance over gamble B.
Inefficiency in economics means that scarce resources are not put to their best use. Inefficiency leads to market failure where the market cannot produce optimally to support the needs of the economy. Inefficiencies mainly arises where when the market is not perfectly competitive especially in monopolies. Most of public goods are produced by the government and therefore the government has the sole power to produce that good. Such goods will be highly priced and the production will be low since demand from the whole public is high and every person is fighting to use that one scarce resource. In this case, water is a scarce resource and it is also a public good and since its provision is through the government it leads to inefficiency in production to meet the whole demand. The government should protect the interests of water users in the provision for the service is privately owned. This can be done through passing laws of consumer protection. Therefore we expect market failure to arise in the absence of a well-functioning market for water rights.
The reason why output maximizing level of technology is not the same as the profit maximizing level of applied water is because there are some water components which are not included in the production process. After obtaining water from its source, the water has components such as consumed water quantity, non-consumed water quantity and non-recoverable water quantity.
Analysis of water-use efficiency potential is not easily identifiable because one cannot differentiate between beneficial and non-beneficial consumptive uses.
Consumptive use refers to water that is unavailable for reuse in the from which it was extracted due to incorporation into plant biomass, evaporation, transfer to another basin, seepage to a saline sink and contamination.
According to Caswell-Zimmerman (1986), the choice of a farmer’s irrigation technology can have a large influence on the demand for water applied, therefore description of how farmers select irrigation methods.
Current market Price
Initial quantity Quantity after quality improvement
Programming valuation of water is the marginal contribution measured as the change in sectorial output from the real allocation of water across the entire economy.
Hedonic valuation of water is the pricing method used to estimate the economic values for ecosystem or environmental services that directly affect market prices. It is commonly applied to variations in housing prices and Consumer Price Index that reflect the value of local environmental attributes. Hedonic model use regression analysis to analyse data. It is a revealed preference method also called demand theory.
Programming valuation method applies to the entire economy while hedonic valuation applies to values of ecosystem. Hedonic valuation applies to services which directly affect the market prices while programming valuation does not apply to market prices.
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