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, which questions why diamonds are more expensive than water despite water being essential for life, is resolved by understanding that the price of a product is related to its marginal utility rather than its total utility. Marginal utility refers to the additional satisfaction or utility that a consumer gains from consuming one more unit of a good or service. Since the marginal utility of water is low due to its abundance, its price is low. Conversely, the marginal utility of diamonds is high due to their rarity, making their price high.

The Diamond-Water Paradox Occurs Because