Question

Arizona News Central--EPA’s new clean-water rules hit Arizona, Southwest hardest

WASHINGTON –January 24, 2020-- Clean-water rules unveiled Thursday by the Trump Administration remove the vast majority of Arizona’s waterways from federal oversight, a change environmentalists call bad news in a region where water is super precious and the population is growing. The newest action sparked months of controversy after the Trump Administration officially proposed the change last February. An EPA science advisory board criticized the action that this newest attack on the environment will spoil much of the state’s remaining water supply.

2A. Below construct a market for Arizona water labeling supply and demand with subscript “1” and that the supply of water is fixed.

                                                  

2B. Write a phrase from the article that speaks to two factors changing the market for water in Arizona.

2C. Return to the market above and make changes to the market consistent with information in the article. Label all new curves and new equilibrium price and quantity with subscript “2”.

2D. Give an economic justification for changes made to the market. (Note: An economic justification is a reason for moving a curve in a market.)

                                   

Answer 1

2A.

1).

  

Here the Equilibrium price will be 105. Equlibrium quantity is 3 gallons.

2B. "a change environmentalists call bad news in a region where water is super precious and the population is growing." With an unregulated market, there will be no breaks on the demand and more pressure on the limited supply, hence disturbing the mismatch and driving the prices for water up.

2C.

2).

2D. As the supply of water was scare, there was a regulation to control the amount of water demanded by the people of Arizona. But when the regulations were lifted, more water was demanded. Since the supply (in quantity) is limited, the same quantity of water was supplied at higher price, hence the equilibrium got shifted and the price per gallon of water increased from 105 to 120 as shown in the graph above.