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213 - 100% + QUESTION 2: 25 marks. Word Limit: 400 Words. Brazil experienced its worse drought in history and many states experienced water shortages.

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213 - 100% + QUESTION 2: 25 marks. Word Limit: 400 Words. Brazil experienced its worse drought in history and many states experienced water shortages. The states responded v different policies and, as a result, achieved different outcomes, including the impacts on efficiency. The water market wa equilibrium before the drought. PART I a. Use the demand and supply diagram to depict the water market before the drought. Describe and correctly lab the variables in the diagram. (2 marks) b. A few states allowed the price of water to increase until the quantity demanded equalled the quantity supplie Explain in detail how the price and quantity of water adjusted to the new equilibrium. Illustrate your answer referring to the diagram of the water market. (5 marks) Was the outcome efficient? Explain by referring to the diagram. (3 marks) PART II Draw a new demand and supply diagram to depict the water market before the drought and use it to illustrate your answers to parts (d) - (f). d. Most states did not allow the price of water to change, despite the impact of the drought on the water market. Describe the price regulation policy implemented by these states. Use the diagram to illustrate your answer. (2 marks) e. Examine the impact of this policy on the quantity of water supplied and demanded and the efficiency of the water market. Refer to the diagram in your explanation. (5 marks) PART III The two different policy responses received wide coverage in the financial press. Some commentators said the policy chosen did not matter, provided the overall outcome was fair. Assess whether or not each of the outcomes was fair. Apply the two notions (results and rules) of fairness in your assessments. (8 marks) P3 VIE

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