Water is essential to life,while diamonds are not.However,water is cheap and diamonds are expensive.This paradox can be resolved by focusing 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 can be resolved by focusing on marginal utility rather than total utility or average utility. Water may have a higher total utility as it is essential to life, but its marginal utility decreases as we consume more of it. On the other hand, diamonds have a lower total utility as they are not essential to life, but their marginal utility remains high due to their scarcity and high demand. Therefore, the price of diamonds reflects their marginal utility, while the price of water reflects its total utility.

Water Is Essential to Life,while Diamonds Are Not