Thursday, October 16, 2014

NYT column on water in CA. Nice graphic that I think I make more clear.

Eduardo Porter at the New York Times has an excellent column on water policy in California. I highly recommend it.  It discusses many economic concepts, with prices and opportunity costs most prominent.

He includes this first graph that shows water consumption at different prices for several different developed countries:

Notice the "Quantity" is on the vertical axis and "Price" is on the horizontal axis.  In economics (by tradition) when we plot demand (or supply) we do the reverse---Price on the vertical, Quantity on the Horizontal.

To put it terms that an introductory econ student can better visualize, I took the plotted points on the graph, reversed the axis, and replotted the points to derive a traditional demand curve as we would recognize from a textbook.  That is below.

The Demand Curve DOES slope downward!

PLEASE NOTE:  I did this by hand "eyeballing" the points so it is not absolutely correct but I hope relatively correct for the most part.  Also, the RED Demand curve I drew is not necessarily mathematically correct either---eyeballed as well.  I accept there is a margin of error! :)

Three countries are outliers compared to the rest: the US, Australia and Canada.

Side by side, both of these help me visualize the issue better.  I hope it does for you as well.
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