The fact that water,which is essential to life,is inexpensive,whereas diamonds,which do not sustain life,are expensive can be explained by the
A) law of diminishing marginal utility.
B) diamond-water paradox.
C) diamond-water theory.
D) diamond-water comparison.
E) law of demand.

Question

Quizplus · Accepted Answer

The phenomenon observed in the statement is called the diamond-water paradox, which refers to the contradiction in prices where necessities like water have a low market value, while non-essentials like diamonds have a high market value. This paradox can be explained by the principle of marginal utility, which states that as one consumes more of a good, the utility or satisfaction derived from each additional unit decreases. Water, being abundant with a low marginal utility, is relatively inexpensive, while diamonds, being rare and having a high marginal utility, are expensive.

The Fact That Water,which Is Essential to Life,is Inexpensive,whereas Diamonds,which