Cost and Pricing Relationships in Water Supply

Governmental decision making in metropolitan areas is becoming increasingly concerned with finding comprehensive solutions to area-wide problems. Development of an adequate urban water supply system is such a problem. Although the price, cost, and quality of water supply offered by various civil subdivisions in a given metropolitan area may be widely divergent, the factors influencing this service are similar. This paper examines the costs associated with supplying drinking water to consumers, the factors affecting the price of water, and the elasticity of consumer demand based on the prices that they must pay. The cost analysis explores the costs by functional area and the costs of transporting water to the consumer. Factors that affect the price of water such as population density are examined, and the reaction of the consumer to increases in price levels is established.