ABSTRACT:The income and proce elasticity of demand for domestic water is estimated for Penang Island, Malaysia. A cross‐sectional analysis of a random sample of 1400 households indicated an income‐elasticity of zero for low‐income families (per capita income less than US$300) and an elasticity of 0.2‐0.4 for higher‐income families. A time‐series analysis of a subsample of individuals of varying income levels suggests a short‐run price elasticity of ‐0.1 to ‐0.2. The implications of these results for demand forecast