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Water management is one of the main issues in the water policy agenda. More than a quarter of the world's population will experience severe water scarcity. Although there is board agreement on the importance of incorporating the concept of scarcity into water-management strategies and decision making, the lack of a standardized approach to embedding water scarcity has hindered progress in this direction. In recent years, pricing household water has been proposed as a tool for managing water scarcity in a national context. The objective of this work is to design a water-pricing model that better signals the value of water scarcity by considering water supply and demand at the same time. The proposed scarcity-based pricing model focuses on the variable component of the tariff and follows an increasing block strategy. The case study of the Taipei Water Resource Domain (Taiwan) is used to illustrate the method. It is Greater Taipei's main source of fresh water. By calculating the supply, demand, and budget of water resources in northern Taiwan, this study also determines the visible spatial distribution of water scarcity. The results show that both the supply and demand of water resources changed considerably under three scenarios, namely, low rainfall, average rainfall, and extreme rainfall. This demonstration illustrates a pathway for the implementation of a proposed scarcity-based pricing policy as a signal for users to adjust their water consumption in a proactive manner.