This analysis evaluates the extent to which water quality influences the cost of supplying domestic water and the extent to which finished water quality affects household water demand from price impacts. The water demand and cost models are based on nationwide data for individual systems collected by the American Water Works Association <1996>. The water cost model estimated in this analysis indicates that factors such as the size of the water supply system, the population density of the service area, the source of water supplies, and water quality all significantly affect the cost per unit of water delivered. The water use model indicates water demand is influenced significantly by household income, household size, temperature, precipitation, the price of water, and finished water quality. Combining the results of the models allows an analyst to evaluate the full impacts of water quality benefits on municipal water supplies.