One of the most common assumptions is that water is not a normal economic good, and that it is the most necessary of all necessities that its price elasticity of demand is perfectly inelastic; both in the short-term and in the long-term, the same quantity of water will be demanded per person. The book however has proven this to be not entirely true. For a particular case in Boulder, Colorado, for example, water usage among residents was extremely lower when metering of actual usage was implemented than before the meters were installed. Furthermore, the quantity of water demanded continued to fall slightly, which means that the long-run price elasticity of demand for water was greater than the short-run price elasticity of demand. These findings are useful insight into policies that would help solve problems on water shortages and endemic wastes. Raising the price of water may help provide incentive to people to save more water, which is turning out to be scarcer every minute.
Saying that water is a scarce good is similar to saying a banana is a scarce good. Water is still subject to the same supply and demand laws as do bananas. Banana is expensive in places where they do not grow and cheap where they are abundant; water is also cheap in areas where it is abundant, but it will become expensive as it begins to become scarce. Water is still rightly called the most necessary of necessities. It just so happens that people are wasting too much of water or consuming more that they necessarily need. It will eventually come down to a situation where water is so scarce that even at the highest price, you’re will to purchase a quantity that is only sufficient to your needs. At this point, the price elasticity of water will become perfectly inelastic. We’re just fortunate enough that government is taking measures to ensure that water is not wasted through price mechanism. One can survive without bananas. One can’t survive without water.