Implicit in the solution to the diamond-water paradox is the idea that prices reflect __________ utility instead of __________ utility.
A)marginal; total
B)total; marginal
C)average; total
D)total; average

Question

Quizplus · Accepted Answer

The solution to the diamond-water paradox argues that prices reflect marginal utility (i.e. the additional utility gained from consuming an additional unit of a good) rather than total utility (i.e. the overall satisfaction gained from consuming a certain amount of a good). This is because diamonds have a higher marginal utility than water, even though water has a higher total utility, leading to their price discrepancy. Therefore, the correct choice is A.

Implicit in the Solution to the Diamond-Water Paradox Is the Idea