Water And Markets Economics Essay
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To what extent do markets determine the distribution and use of water in Australia.
Water is an essential resource and is, fortunately, the most abundant resource on Earth. About three quarters of the Earth is covered by water, including oceans, rivers, lakes and glaciers. Of this water, however, only about three percent is fresh, with the remainder ruined by contamination such as salt and pollution. Australia is the driest inhabited continent on Earth. The country of Australia is made up of mostly dry or desert lands and is classed as semi-arid or arid. About eighty percent of Australia receives an annual rainfall of less than 600 millilitres, and fifty percent receives an annual rainfall of less than 300 millilitres. There are some parts of northern, eastern, south-eastern and south-western Australia that receive more rainfall. This difference is caused by elevation, precipitation and temperature. Australia has many lakes, but the water is generally salty and unsuitable for drinking. The Murray River is 2589 kilometres long, making it Australias longest river that flows all year round, and is an important source of water for many regions. The Murray-Darling river system is Australias longest river system at 3750 kilometres. It flows through Queensland, New South Wales, ACT, Victoria and South Australia. During winter, rain and snow increase the water levels and flow of the rivers of the Murray-Darling. During the summer, evaporation and lower rainfall decreases the amount of water in the system. In southern Queensland, however, heavy rains in summer can cause flooding if the water flows into the Murray-Darling river system. Previously, the water level was too shallow for boats to travel along or to irrigate farms due to large variations in the flow of the river. Nearby houses and farms were damaged by floods, but dams and weirs have been built since then to help prevent these problems. They allow water to be stored and released later when the flow is less. The Murray-Darling Basin supports forty two percent of all Australian farms. The Great Artesian Basin covers an area of about 1.7 million square kilometres and is the largest source of underground water in Australia. Sometimes when underground water comes to the surface a swamp or spring is developed. An oasis can form when the underground water comes close to the surface in the desert and allows plants to grow. Underground water often contains dissolved salts and other minerals and sometimes the combination of these makes the water unsuitable to drink, but they often give the water a fresh taste, different to tap water. In Australia, there are about 2.5 million square kilometres of underground water. Many country towns rely on underground water and water pumped from rivers or lakes. To help provide enough pressure for the water to be transported around the towns, water is pumped into elevated tanks. In some remote places, people rely on salty groundwater made drinkable by desalination. Dams that collect runoff from surrounding land are found on many farms. Windmills were used to pump water from underground for farms, but now electric pumps are more commonly used. Storage tanks hold water pumped from rivers or underground so that there is enough when the demand for water is high. The main water supply for farmhouses is often rainwater tanks. On some farms, crops that require more water than they can acquire from rainfall are grown. This means that the farmers are forced to irrigate. Water is vital to humans, who cannot survive without it. Bottled water, tap water and irrigation water are all examples of markets for water. In the human body, water helps cool the body and remove waste products. An adult human needs about three to four litres of water per day. These requirements come from the food we eat and, obviously, the water we drink. Consumers need water to survive, and producers have water, therefore consumers and producers must come together, at some point, in order to trade. A trade is simply an exchange of value. In the market system, the price of water is set via the interactions of buyers and sellers. This price determines the distribution of water.
There are many different types of markets of water, including tap water, irrigation water and bottled water. Both tap water and irrigation water are examples of monopolistic markets, whereas bottled water is an oligopoly. A monopoly occurs when:
only one seller dominates the market
there are no close substitutes
the firm is a price maker – As the only supplier, the government can choose where on the demand curve the industry will operate, therefore determining either the price or the quantity traded. They can decide whether to sell less at a high price or more at a lower price, but the decision would almost certainly be targeted at maximising profit.
barriers to entry exist – Once competitors enter the water industry, the government loses the advantages of monopoly control. Barriers may include:
control over vital raw materials
tariff protection from importers
protective government legislation
temporarily low prices to force out competitors
the large amounts of capital required makes it difficult for potential competitors
the monopolist will often have better access to finance than the competitor
large research and development budgets help monopolists maintain their technological advantage over potential rivals
the producer uses goodwill advertising – Since there is no competition, advertising focuses on image enhancing public relations and sponsorship of major events.
An oligopoly, on the other hand, is a market structure with a few firms that control a major proportion of sales. The remainder of the market is serviced by a larger number of smaller firms that have little impact on the larger firms. An oligopoly exists when:
there are a few sellers dominate the market
there are similar goods or services
there is product differentiation – Producers advertise to promote their product as being distinctly different to that of the competition or associated with particular attractive lifestyles. Advertising