Here is what might actually happen:

A) Water costs $5
B) Peter values water at $4
C) Peter doesn't buy water 
D) Price of water stays the same

jtimon is thinking that if there is less demand for something the price goes down. This doesn't really happen. The price never goes down lower than the cost of labor needed to make it. If it is valued less than that it just doesn't get made. But the price stays the same.

All things being equal, the price of the item (the number on the price tag) is always going to be around the cost of the labor.