Suppose there are two users competing for the use of a surface water resource.

a. Using a simple diagram, show (and explain) that if a surface water resource is sufficiently scarce, the efficient allocation between the two users will be such that the entire supply of water will be allocated to the user with the highest marginal benefit. What is the threshold supply of water above which the low-benefit user begins to be allocated some of the water?

b. Using a similar diagram, show (and explain) that if a surface water resource is sufficiently abundant, the efficient allocation between the two users will be such that each of their marginal benefits will be equal to zero. What is necessary for a surplus of water to exist in your model?