Agricultural users of water pay less than residential and business users. Since 1993, water rates have increased by more than 90 percent for residential customers and by only 50 percent for agricultural users.
a. Do you think that the allocation of water between agricultural and residential users is likely to be efficient? Explain your answer.
b. If agricultural users paid a higher price, would the allocation of resources be more efficient?
c. If agricultural users paid a higher price, what would happen to consumer surplus and producer surplus from water?
d. Is the difference in price paid by agricultural and residential users fair?