Question

In California and many other states, there is a severe drought. What has happened to the supply curve of water? If there is a shortage of water, what will happen to the price of water? Do you agree that this change in the price of water is the best way to eliminate the shortage? Is this a fair way to reduce the shortage? Do you have any other ideas to eliminate the shortage? How will the drought impact agricultural goods' supply curves and their prices?

Answer 1

In the times of drought the supply curve of the water shift to the left i.e. less supply of water.This decreases the quantity of water and increases the supply of water.

At the time of shortage of water, the price of the water moves up. Increasing the price of the water will eliminate the deficit but it is not the right way to do things. Water is essential for every living being on earth. Increasing the price of the water will make it beyond the reach of the poor population living in California this could lead to catastrophic results in the drought facing area.

To reduce the shortage of water we should increase the supply of water. This will bring the price of water and increase the quantity of water available on the ground.

The drought will also move the agriculture goods supply curve to the left i.e. less supply and higher price with less amount of agriculture product in the market.