The diamond-water paradox is an example that shows that
A) necessities like water should have a higher price.
B) marginal utility rather than total utility determines what people are willing to pay for a good.
C) there are exceptions to the law of diminishing marginal utility.
D) marginal utility can initially increase and then decrease.

Question

Quizplus · Accepted Answer

The diamond-water paradox shows that although water is essential for life and diamonds are not, diamonds have a higher market value because the marginal utility of an additional diamond is higher than the marginal utility of an additional unit of water. This demonstrates the importance of marginal utility in determining prices, rather than total utility or necessity.

The Diamond-Water Paradox Is an Example That Shows That