Monday, April 11, 2011

There is no such thing as a water shortage

In class, I often ask my students if there is a shortage of affordable housing. Then I ask them if there is a shortage of low priced Rolls Royce autos.

Eventually, they begin to get the idea that shortages are caused by an absence of trade, between those who have assets, and those who are willing to pay more for them, but are somehow prevented from doing so. Preventing this trade is what causes shortages.

Here is a good example of this: how development of a water market ended the "shortage" of water.

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