The high price of diamonds relative to the price of water is due to the fact that
A) total benefits from water are relatively low.
B) total benefits from diamonds are relatively high.
C) marginal benefits from water are relatively high.
D) marginal benefits from diamonds are relatively high.
E) none of the above is true.

Question

Quizplus · Accepted Answer

The high price of diamonds relative to the price of water is due to the fact that marginal benefits from diamonds are relatively high. Diamonds are considered a luxury item and have a high perceived value due to their rarity, durability, and association with status and romance. On the other hand, water is a necessity for human survival and has a low perceived value in comparison to diamonds. The marginal benefits of diamonds are higher than the marginal benefits of water, which leads to the difference in price.

The High Price of Diamonds Relative to the Price of Water