ABSTRACT
The field of microeconomics provides tools to evaluate how scarce resources might be allocated in an efficient way in the market among a range of uses, given certain assumptions and limitations. Groundwater markets are often thought of as neutral but efficient in approach to respond to water demand. Human economic utility for goods is driven by tastes, preferences and needs. In defining the utility function for groundwater in this way, one can consider pricing water relative to the user’s purpose and consequent demand for volume, place, time, composition and reliability of supply. Neoclassical economics assumes that capital and labor are substitutable in the production function. Natural monopolies characterize most water utilities supplying communities with water. Neoclassical economics has established a set of assumptions used in defining competitive markets, which do not apply well to groundwater.
