Raging Cedar flood waters have turned Wapello into an island. Oakville, population 950, will be a wiped from the face of the map when the murky waters recede. What will be left are family photographs, foul smelling wood homes, and trash from fast food restaurants. In the high Iowa heat, the trash will dry out and blow away--the new tumbleweeds of the 21st century.
In Cedar Rapids, residents are rationing water. The Des Moines Register tells residents to use bathtub water to flush toilets. In a disaster, temporary shortages should be endured and shared by all equally. Gulfport is now being evacuated.
Suppose that consumers maximize their utility by consuming point 1, QX, and QY. If water is rationed to point QX', the consumers will be on a lower indifference curve. Consumers will try to reach the highest point on their new utility curve, point 2. It is likely, because of the slope of the budget constraint curve, that high income earners will be most drastically effected as is the case in Oakville.
Point B is not a stable equilibrium and a black market will develop. Incentives will develop for consumers to move from point 2 to point 1 even if they must pay exorbitant prices for water.
In my humble view, equal does not mean equitable. Rationing doesn't always allocate goods in the best utility maximizing way. During the flood, people should be allowed to sell their bottled water since this would lead to a Pareto efficiency. MSN has more.
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