Why does the paradox of value between diamonds and water arise?
A) because water has a low price and a low total utility, while diamonds have a high price and a high total utility
B) because water has a low price and a low marginal utility, while diamonds have a high price and a high marginal utility
C) because necessities like water are higher priced than luxuries like diamonds
D) because diamonds have a higher value to people even though water is essential to life
E) because water has a low price and a low total utility, while diamonds have a high price but also a low total utility

Question

Quizplus · Accepted Answer

The paradox of value arises because of the difference in marginal utility of water and diamonds. While water has high total utility and is necessary for survival, its marginal utility is low as it is easily available. On the other hand, diamonds have low total utility but high marginal utility as they are rare and desirable. This leads to a situation where the price of diamonds is much higher than water, despite the latter being essential for life.

Why Does the Paradox of Value Between Diamonds and Water