In 1985 a desert community stopped pumping water from a 1000 foot well because it had run dry. In 2005 the price of water doubled. The community then drilled the well deeper and started pumping again. In this community,
A)the supply of water is perfectly inelastic because it is a finite resource.
B)water production is characterized by increasing opportunity costs.
C)markets cannot reach equilibrium because there is a persistent shortage of water.
D)higher water prices can reduce quantity demanded but cannot increase quantity supplied.

Question

Quizplus · Accepted Answer

A deeper well is more costly to dig and utilize. Thus, in 1985, the benefit of additional lower-priced water was not worth the added cost of a deeper well, but at the higher 2005, price apparently the benefit of the additional now higher-price water was greater than the additional cost of a deeper well.

In 1985 a Desert Community Stopped Pumping Water from a 1000