Water Restriction

The water restriction leads to issues and concerns raised by observers. For example, economic costs related to water restriction are borne disproportionately by certain consumers.

Some cities have faced a ban on outdoor water use as restrictions have been tightened in recent years. But the National Water Commission thinks such restrictions are unfair and there are better ways of cutting water use as the country grapples with drought. "The commission regards long-term temporary water restrictions as an inequitable and inefficient way of balancing supply and demand," the commission said in its water proposal, released on Wednesday.

Two central conditions necessary for a market system of resource allocation to function efficiently include: (1) the resource user must be certain of the quantity, quality, location and timing of resource availability, (2) the resource must be perfectly divisible and (3) resource use must not affect, or be affected by, utilization of the resource by another party.

However, inefficiencies would cause a market failure. () indicates the two reasons that regulation may generates market failure. First, very significant economies of scale exist in pumping and delivery. Where diversion is necessary, individual irrigators, for instance, are usually unable to transport small amounts of water in isolation, due to conveyance losses. That is to say that management by a group number would be a problem rather than for perticular individuals.

Second, indivisibility violates perhaps the most important condition for efficient water use: independent production and consumption functions. ()Because the optimal price and quantity of water produce should be determined by the individuals' demand and supply. At that point, it would leads to a maximium consumers and producers' surplus. However, with the regulation of government, it would leads to a distorted supply outcome. And it would not be as good as the most