The diamond-water paradox occurs because
A) the price of a product is related to its total utility, not its marginal utility.
B) the price of a product is related to its marginal utility, not its total utility.
C) water is, in fact, very scarce in certain regions of the world.
D) diamonds are more useful than water.

Question

Quizplus · Accepted Answer

The diamond-water paradox arises because although water is essential to life and has high total utility, the marginal utility of an additional unit of water is very low due to its abundance. On the other hand, diamonds are not essential to life and have low total utility, but the marginal utility of an additional diamond is very high due to their scarcity. Therefore, the price of a product is related to its marginal utility, not its total utility.

The Diamond-Water Paradox Occurs Because