Discussion 1 Risk and Return

What was the most "eye opening" information you learned about droughts? Why did you find it so interesting?

Using the supply-and-demand model, explain what would happen to the supply curve during a drought. Also explain the affect on the price of water as illustrated by the graph?

We know the supply curve for water is not easily changed, (That is, it's not easy to make rain!) so let us assume a "fixed" supply (In other words, the supply curve is vertical at a given point in time). We also know during times of drought, people are encouraged to conserve water usage. Graphically, what does conservation "look like" on our supply and demand graph? What happens to price? What are the implications for the success of conservation measures and policies?