PRICE ELASTICITY OF

DEMAND FOR WATER

USE
INTRODUCTION

WATER PRICING is an economic

instrument
that
may
control
consumers water demand.
WATER PRICING & CONSUMPTION
are inversely related.
A convenient way to quantify this
relation
is
through
PRICE
ELASTICITY.
List of Units/Symbols Used in this
Presentation
o lpd Liters per day
o lpcd Liters per capita per day
o lps Liter per second
o m3/d cubic meter per day
o HH-Household

WHAT IS 'PRICE ELASTICITY OF DEMAND'

Price elasticity of demand for water
use is a measure of the relationship between
a change in the water consumption and a
change in its price.
PRICE ELASTICITY OF DEMAND = %
CHANGE IN WATER DEMAND / % CHANGE
IN PRICE

If the percentage change in the

quantity demanded equals the percentage
change in price.
INELASTIC DEMAND

|n p|< 1
A product is inelastic if a large change
in price is accompanied by a small amount of
change in quantity demanded.
PERFECTLY INELASTIC DEMAND

|n p|=0
If the price elasticity of demand is
equal to 0, demand is perfectly inelastic (i.e.,
demand does not change when price
changes).
SERVICE LEVEL DEFINITIONS
WATER SERVICE LEVELS are classified IN
THE PHILIPPINES under three types:

LEVEL I (POINT SOURCE) This level

provides a protected well or a
developed spring with an outlet, but
without a distribution system. The users
go to the source to fetch the water.

LEVEL
II
(COMMUNAL
FAUCET
SYSTEM OR STAND POSTS) This
type of system is composed of a source,
a reservoir, a piped distribution network,
and communal faucets. The consumers
still go to the supply point (communal
faucet) to fetch the water.

LEVEL III (WATERWORKS SYSTEM

OR
INDIVIDUAL
HOUSE
CONNECTIONS) This system includes
a source, a reservoir, a piped
distribution network, and individual
household taps. It is generally suited for
densely populated urban areas where
the population can afford individual
connections

| QP |

|n p|=

ELASTIC DEMAND

|n p|> 1
If a small change in price is
accompanied by a large change in quantity
demanded, the product is said to be elastic
(or responsive to price changes).
UNIT ELASTIC DEMAND

|n p|=1

WATER CONSUMPTION
Water consumptions served by small water
utilities are commonly classified into

Domestic Use, Commercial Use, Institutional

Use, or Industrial Use.
DOMESTIC CONSUMPTION is further
classified as either Level II consumption
(public faucets) or Level III consumption
(house connections)

LEVEL II PUBLIC FAUCETS: 50 - 60

LPCD (Each public faucet should serve
4 - 6 households)
LEVEL III HOUSE CONNECTIONS:
80 - 100 LPCD

The unit consumptions of INSTITUTIONAL

AND COMMERCIAL connections are, in
terms
of
daily
CONSUMPTION
per
connection, usually expressed in cubic
meters per day (m3/d).

Connectio
ns
Average
Day
Consumpti
Connectio
3
on (m
ns /d)
Average
Day
Consumpti
on (m3/d)

calculated (in m3/day or lps) from the

estimated water consumptions and the
allowance for the NRW (expressed as a
percentage)
EXAMPLE 1:
A system with consumption of 2 lps with a
15% NRW will have an average day demand
equal to:
SOLUTION 1:

2 lps
=2.4 lps
1NRW
EXAMPLE 2:
Determine the Price Elasticity of the water
connection system using the data below

Domest
ic

Commerci
al

Institutio
nal

Tota
l

December 31, 2016 Water Demand (m3/d)

540

543

January 1, 2017 Water Demand (m3/d)

Domest
ic
243
545

Commerc
ial
1.6
2

Institutio
nal
1.0
1

Total
245.
6
548

245.25

1.6

1.0

247.8
5

INSTITUTIONAL CONNECTIONS: 1.0

m3/d
COMMERCIAL CONNECTIONS: 0.8
m3/d

TOTAL CONSUMPTION
The total consumption is the sum of
the domestic, institutional and commercial
consumptions expressed in m3/d.
NON-REVENUE WATER (NRW)
Non-revenue water is the amount of
water that is produced but not billed as a
result of leaks, pilferages, free water, utility
usages, etc. The water demand projection
should assume that the NRW of the new
system will be fifteen percent (15%) of
the estimated consumptions.
WATER DEMAND
The water demand is a summation of
all the estimated consumptions. The
AVERAGE DAILY WATER DEMAND, also
known as the AVERAGE DAY DEMAND, is

December 31, 2016 Total Basic Water Charge

(in PHP/m3)
P25.25 per cubic meter
January 1, 2017 Total Basic Water Charge (in
PHP/m3)
P24.89 per cubic meter
SOLUTION 2:

245.6247.85
245.6
|n p|= 25.2524.89 =0.64
25.25

This can be interpreted as a large

reduction in the charge rate for water

consumption accompanied by a small
increase for water demand.

REFERENCES:
http://www.manilawater.com/Pages/ReadNew
s.aspx?MBID=209
Rural Water Supply Volume 1 Design Manual
Published by The World Bank Office Manila
(2012)

Workshop on the Water Pricing Policies

according to the Framework Directive
2000/60/EC