Most residents of Ventura County, California, pay $3.10 per 100 cubic feet of water. Agricultural water users pay $1.79 per 100 cubic feet. Water officials propose to increase these prices to $4.24 for residential users and to $4.92 for agricultural users by 2020. Water district officials say these price increases are fair.

a. Do you think that the allocation of water between agricultural and residential users is likely to be efficient? Explain your answer.

b. If agricultural users paid a higher price, would the allocation of resources be more efficient?

c. If agricultural users paid a higher price, what would happen to consumer surplus and producer surplus from water?

d. Is the proposed change in prices paid by agricultural and residential users fair?