One remedy of such conditions, the water shortages, is to allocate the water more efficiently using proper pricing policies. A study is conducted in Boulder, Colorado to examine more carefully the demand-price relation for water. We will only analyze the residential demand but not the commercial and industrial demands to simplify the study. Many people think the law of demand would not work or only to a small degree if the commodity is a necessity. Since people need the necessity, a slight or moderate increase or decrease in price would not change the consumer behavior.
Water is a necessity.
We shall see later that this belief in incorrect. First, we will look at the sprinkling consumption. When the water meters were installed, water consumption was clearly down and it was immediate. This change of consumer behavior verifies the law of demand. When there is an increase in price for water, the quantity demanded for water decreases.