Water is essential to life while diamonds, while beautiful, are not esentialto life.In the marketplace, diamonds are very expensive while water isrelatively cheap.We can resolve this paradox by focussing on
A)total utility rather than average utility
B)average utility rather than marginal utility
C)marginal utility rather than total utility
D)total utility rather than marginal utility
E)average utility rather than total utility

Question

Quizplus · Accepted Answer

The paradox of water being essential but cheap while diamonds are non-essential but expensive can be resolved by focusing on marginal utility. Marginal utility is the additional satisfaction or benefit that a consumer receives from consuming one more unit of a good. In this case, the marginal utility of water is very high because it is essential for survival and the marginal utility of diamonds is low because they are not essential. Therefore, consumers are willing to pay a higher price for diamonds because they have a lower marginal utility compared to water, which is relatively cheap because it has a high marginal utility. Focusing on marginal utility helps explain why some goods are expensive even though they are non-essential, and why some goods are cheap even though they are essential.

Water Is Essential to Life While Diamonds, While Beautiful, Are