ABSTRACT
A fundamental understanding of water economics is foundational to any study related to the science of water. From an economist’s viewpoint, the value of water can be analyzed through both a microeconomic and a macroeconomic lens. Microeconomics provides a framework for examining the value of water to an individual household, firm, or industry. In contrast, macroeconomics provides a multisector framework for understanding how water resources contribute to economic activity at a regional or national level, as measured by such indicators as employment and gross domestic product. Macroeconomic analysis also offers a means of understanding the complex interrelationships between the use of water in one sector of the economy and economic activity in others. A most important principle of economics is that competitive and well-informed markets will produce an optimal use of resources, reaching an equilibrium at which the market price of a good is equal to both the marginal cost of supplying it and its marginal value to consumers.
