How should one classify water in economic terms?

Is it a commodity, a natural resource, can it be both? Does it depend on how it is being used (e.g., as input/raw material in some process)? I was curious about all the ways water could be characterized economically (e.g., as a rival good, a commodity etc.) and would be grateful for some pointers.


1 Answer 1


Most of the terms you mention are not mutually exclusive.

Commodity is not a specialized term and it just denotes some (mostly) fungible economic good (see here or here). So water is a commodity.

Natural resources can be defined as (OECD 2005):

Natural resources are natural assets (raw materials) occurring in nature that can be used for economic production or consumption.

So water is also a natural resource.

In terms of economic classification water (tap or bottled) is private good because it is both rival and excludable (see Mankiw Principles of Economics pp 226). However, here it also depends which water we are talking about. I assume you mean tap or bottled drinking water. An argument could be that water in rivers, lakes and seas is non-excludable (in the case of lakes it would also depend on size of the lake). If we would be talking about water in a sea it would common resource because of non-excludability.

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    $\begingroup$ +1 I would just add that while clean fresh water is clearly both a commodity and a natural resource, it would be difficult to argue that salt water is a commodity if commanding a price is part of the definition of a commodity. There is just too much in the oceans for there to be any issue of scarcity giving rise to a price. On the other hand salt water is a natural resource, eg as an input to desalination plants producing fresh water, and for use as a coolant in coastal nuclear power stations. $\endgroup$ Apr 25 at 20:48
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    $\begingroup$ +1 I also would like to add that it falls under "land" in LLK: Land, Labor, (K)Capital. $\endgroup$ Apr 26 at 18:08

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