Water Sector Pricing
**Problem statement:**
Three sectors A (Agriculture), U (Urban), I (Industry) consume and supply water interdependently with given usage coefficients. Let $p_1, p_2, p_3$ be prices per unit output for A, U, I respectively.
**1. Constructing the system of linear equations:**
Each sector's income equals its total water expenditure, so for sector $i$, income $p_i$ equals the sum of water consumed from each sector times that sector's price.
From the table, consumption matrix $C$ is:
$$C=\begin{bmatrix}0.4 & 0.2 & 0.3 \\ 0.2 & 0.6 & 0.4 \\ 0.4 & 0.2 & 0.3 \end{bmatrix}$$
Equations:
1. $p_1 = 0.4 p_1 + 0.2 p_2 + 0.3 p_3$
2. $p_2 = 0.2 p_1 + 0.6 p_2 + 0.4 p_3$
3. $p_3 = 0.4 p_1 + 0.2 p_2 + 0.3 p_3$
Rearranged:
$$
\begin{cases}
p_1 - 0.4 p_1 - 0.2 p_2 - 0.3 p_3 = 0 \\
p_2 - 0.2 p_1 - 0.6 p_2 - 0.4 p_3 = 0 \\
p_3 - 0.4 p_1 - 0.2 p_2 - 0.3 p_3 = 0
\end{cases}
$$
Simplified:
$$
\begin{cases}
0.6 p_1 - 0.2 p_2 - 0.3 p_3 = 0 \\
-0.2 p_1 + 0.4 p_2 - 0.4 p_3 = 0 \\
-0.4 p_1 - 0.2 p_2 + 0.7 p_3 = 0
\end{cases}
$$
**2. Matrix form and solution:**
Matrix form: $Mp=0$ with
$$
M = \begin{bmatrix}
0.6 & -0.2 & -0.3 \\
-0.2 & 0.4 & -0.4 \\
-0.4 & -0.2 & 0.7
\end{bmatrix}, \quad p = \begin{bmatrix}p_1 \\ p_2 \\ p_3 \end{bmatrix}
$$
Since trivial $p=0$ is trivial solution, we want nontrivial prices $p$ which satisfy $\det(M)=0$, indicative of eigenvector corresponding to eigenvalue 0.
Using Gaussian elimination or matrix methods, solving system for ratios:
From 1st eq:
$$0.6 p_1 = 0.2 p_2 + 0.3 p_3 \Rightarrow p_1 = \frac{0.2}{0.6} p_2 + \frac{0.3}{0.6} p_3 = \frac{1}{3} p_2 + \frac{1}{2} p_3$$
Substitute $p_1$ into 2nd eq:
$$-0.2 \left(\frac{1}{3} p_2 + \frac{1}{2} p_3\right) + 0.4 p_2 - 0.4 p_3 = 0$$
$$-\frac{0.2}{3} p_2 - 0.1 p_3 + 0.4 p_2 - 0.4 p_3=0$$
$$\left(0.4 - \frac{0.2}{3}\right) p_2 + (-0.1 - 0.4) p_3=0$$
$$\frac{1.2 - 0.2}{3} p_2 -0.5 p_3 = 0$$
$$\frac{1}{3} p_2 = 0.5 p_3 \Rightarrow p_2 = 1.5 p_3$$
Substitute $p_2=1.5 p_3$ into $p_1$:
$$p_1 = \frac{1}{3} \times 1.5 p_3 + \frac{1}{2} p_3 = 0.5 p_3 + 0.5 p_3 = p_3$$
Check 3rd eq:
$$-0.4 p_1 - 0.2 p_2 + 0.7 p_3= -0.4 p_3 - 0.2 (1.5 p_3) + 0.7 p_3 = (-0.4 -0.3 +0.7) p_3 = 0$$
Valid.
Prices up to scale:
$$p_1 : p_2 : p_3 = 1 : 1.5 : 1$$
**3. Economic interpretation:**
These relative prices represent a consistent sustainable pricing scheme where each sector's income balances its water usage expenditure.
The price for Urban ($p_2$) is higher reflecting its greater water interdependence.
Such pricing can guide water resource allocation ensuring equitable and balanced sectoral demand and supply.