"Essential" water is cheaper than "nonessential" diamonds because
A) new industrial uses for diamonds have been discovered.
B) the supply of water is great relative to demand and the supply of diamonds is small relative to demand.
C) although the total utility of diamonds is greater, their marginal utility is small.
D) the supply of diamonds is great relative to demand and the supply of water is small relative to demand.

Question

Quizplus · Accepted Answer

The law of supply and demand indicates that prices are determined by the relative scarcity of goods and the level of desire for those goods. Water is essential for life and is generally abundant, which means its supply is greater than demand, causing its price to be lower compared to diamonds. Diamonds, on the other hand, have a smaller supply relative to demand and are considered luxury goods, which increases their price.

"Essential" Water Is Cheaper Than "Nonessential" Diamonds Because