The Price Elasticity of Demand of Australian Urban Residential Consumers and Water Restrictions

Abstract

The aim of this article is to provide derived estimates of the price elasticity of demand for water for residential urban consumers in Australia over the years 2005/06 to 2016/17. The results of the study indicate that higher water and sewerage prices, bundled together, are associated with lower demand for water. The relationship, therefore, between the prices of water and sewerage and demand for water is a negative one.  This relationship, however, is a relatively inelastic one, that is a large change in price is required before there is much of a change in demand for water.  With the supply of water in most Australian urban centers are controlled by monopoly suppliers this means that there is some scope for water restrictions to negate this market power.