This is the latest in our series of posts in our series on price theory problems with Professor Bryan Cutsinger. You can see all of Cutsinger’s problems and solutions by subscribing to his EconLog RSS feed.
Share your proposed solutions in the comments. Professor Cutsinger will be present in the comments for the next couple of weeks, and we’ll post his proposed solution shortly thereafter. May the graphs be ever in your favor, and long live price theory!
Question: The Texas Minimum Construction Standards require that all plumbing fixtures be WaterSense certified. Examples of requirements under these standards include low-flow faucets, shower heads, and toilets.
Suppose, for the sake of argument, that before the requirement for low-flow toilets went into effect, installing a normal-flow toilet cost $250. Suppose also that installing a low-flow toilet costs plumbers an additional $100 under the regulations, and that their customers value the savings from low-flow toilets at $25 per toilet.
Illustrate how the demand and supply curves for toilets shift as a result of the law. What happens to the price of a new toilet (providing a range of new prices is sufficient)? Who gains from the law: plumbers, their customers, both, or neither? Justify your answer.
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