Overview
Read the article attached and answer these 3 questions. Around a paragraph for each answer
1. What is the effect on the demand for water of subsidies to replace grass at private Los Angeles residences with native California plants? What is the effect of the change in demand on L.A. water shortages?
2. Evaluate two options to reduce water shortages: increase the price of water; subsidize demand reduction. Why would the city of Los Angeles choose to subsidize demand reduction as opposed to increase water prices?
3. Does the L.A. water shortage indicate that markets poorly allocate resources?