Explain the difference between physical and economic water scarcity.

Physical water scarcity can often occur when and where there is not enough water to meet both human demands and those of ecosystems to function effectively. Arid regions can constantly suffer from physical water scarcity. It also occurs where water seems abundant but resources are over-committed.

whereas

Economic water scarcity is caused by a lack of investment in [water] infrastructure or insufficient human capacity to satisfy the demand of water in areas where the population cannot afford to use an adequate source of water.

Physical Water Scarcity - Adequate quantity of water not available for the purpose that it is required. It relates to quantity.

Economic Water Scarcity - Water is available but not of adequate quality and purifying it to be used is non economical given the technological reasons. For example if you are located near the seashore , a lot of ground water is available at depth of 2 meters but all of it is saline. So you cannot even use it for trees or crops. You have to get water from deep midlands which is costly and hence uneconomical.