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Q 1 (15 points) Calculate the Total Annual Economic Benefits (TAEB) to the city’s water stakeholders foreach program and show calculations.Q 2 (10 points). You have been hired as an expert consultant, and will snag a juicy consulting fee if yourecommend the right choice. Describe your recommended choice and explain why you would make it.Homework # 2
Passed out February 9
Due Feb 16
Water Resource Economics
Spring 2021
25 points
(2 typed pages including tables/figures)
A vigorous debate rages over which of two potential urban water programs is a better way to supply
safe affordable drinking water to residents of a large poor city. The high points of each program are:

Program 1: Supply a minority of the population with cheap piped‐in water by delivering 10,000
acre feet per year of utility supplied water from a central delivery system, at a price equal to the
average cost of supply, \$300/ac‐ft. The remainder can only buy from street vendors described at
https://www.wiego.org/informal‐economy/occupational‐groups/street‐vendors a total quantity
of 40,000 ac‐ft, at a price of \$900 / ac‐ft.

Program 2: Supply the entire population by meeting all demands an amount equal to 70,000
acre‐feet per year. This program would build and use a shiny new engineered central delivery
system that supplies at a constant price equal to the average cost of supply. That price is \$600 /
per acre foot, charged to all buyers.
Your task is to compare Total Annual Economic Benefits (TAEB = CS + TR – TC) of each program by
ranking the economic performance of each from the view of the city’s water buyers/suppliers. You can
use these abbreviations:
CS = consumer surplus = willingness to pay minus actual payments
TR = total revenue
= price x quantity
TC = total cost
= average cost x quantity
calculated for each program
calculated for each program
calculated for each program
I will show you more about these terms in class (Feb 4‐9), by showing you the down‐sloping demand
function for which the maximum price of water (y intercept) is \$1600 per ac‐ft.
Q 1 (15 points) Calculate the Total Annual Economic Benefits (TAEB) to the city’s water stakeholders for
each program and show calculations.
Q 2 (10 points). You have been hired as an expert consultant, and will snag a juicy consulting fee if you
recommend the right choice. Describe your recommended choice and explain why you would make it.
Homework 2, 2021:
• Compare total annual economic benefit (TAEB = CS + TR
– TC) to water buyers under each of two potential
urban water supply network plans.
– 1st method: supplies a minority of the population with cheap water
by delivering 10,000 acre feet per year of utility supplied water at a
price of \$300 per acre foot. All the rest must buy from street
vendors 40,000 ac-ft at a price of \$900 / ac-ft.
– 2nd method: Meets demands of 70,000 acre feet per year to all
buyers using a central delivery system that can supply at a constant
price of \$600 per acre foot.
• The max price of water (y intercept) is \$1600 per ac-ft.
• What is the TAEB of each program, assuming that TR =
TC for both programs?
• What policy recommendation would you make and why?
1
HW 2 Tips and Tricks
• Remember: TAEB = CS + TR – TC
• Water utilities are typically required to charge a
price equal to ave cost. Assume true for hw 2.
• For our hw, this means
– \$300/af price = 300/af average cost:
– \$900/af price = 900/af average cost:
– \$600/af price = 600/af average cost:
• Areas A + B + E = CS
• Areas A+B+C+D = CS
so TR = TC
so TR = TC
so TR = TC
(network plan 1)
(network plan 2)
2
Homework 2, 2021
TAEB = CS + TR – TC
Price (\$ per acre foot)
1600
Supply schedule, program 1 (stair step)
A
900
600
300
Supply schedule, program 2
(horizontal line)
B
C
D
G
H
E
F
I
Demand curve
Quantity
10,000
50,000 70,000
3

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