Water price, price elasticity and the demand for drinking water

This article discusses the limitations in applying the price elasticity concept to drinking water. According to several studies, drinking water demand is mainly dependent on the capacity of water-using appliances (washing machines, toilets) and industrial installations. The replacement of such appliances seldom takes place directly after a price rise, but much later when they are worn out. However, the industry does react to price rises for drinking water by developing appliances that use less water. Unfortunately, this cannot be shown by conventional price elasticity studies as they rely on a direct and immediate reaction to changes in price.