The high price of diamonds relative to the price of water reflects the fact that,at typical levels of consumption,
A)the total utility from water is relatively low.
B)the total utility from diamonds is relatively high.
C)the marginal utility from water is high.
D)the marginal utility from diamonds is relatively low.
E)the marginal utility from diamonds is greater than the marginal utility from water.

Question

Quizplus · Accepted Answer

The high price of diamonds compared to water is due to the higher marginal utility of diamonds. Marginal utility refers to the additional satisfaction or usefulness obtained from acquiring one more unit of a product. Since diamonds are rare and considered luxury items, obtaining an additional diamond provides a significant increase in utility compared to obtaining an additional unit of water, which is abundant and essential for life but provides less additional satisfaction with each extra unit consumed.

The High Price of Diamonds Relative to the Price of Water