The diamond-water paradox was solved by knowing that
A) the total utility of water is greater than the total utility of diamonds.
B) the marginal utility of water is greater than the marginal utility of diamonds.
C) the price of water and diamonds is determined by total utility received, not marginal utility.
D) the price of water and diamonds is determined by marginal utility, not total utility.

Question

Quizplus · Accepted Answer

The diamond-water paradox was solved by understanding that the price of goods is determined by their marginal utility rather than their total utility. This explains why diamonds, which have a high marginal utility due to their rarity, are priced higher than water, which has a lower marginal utility due to its abundance, despite water having a higher total utility for survival.

The Diamond-Water Paradox Was Solved by Knowing That