-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT
A) the demand for water exceeds the demand for diamonds.
B) the price of diamonds exceeds the price of water.
C) since the price of diamonds is high, demand is great.
D) marginal utility of diamond consumption is relatively high.

Question

-Refer to the above figure. All of the following are true concerning the diamond-water paradox EXCEPT
A) the demand for water exceeds the demand for diamonds. 
B) the price of diamonds exceeds the price of water. 
C) since the price of diamonds is high, demand is great. 
D) marginal utility of diamond consumption is relatively high.

Quizplus · Accepted Answer

The diamond-water paradox illustrates that the price of goods is not determined by their total utility but by their marginal utility. Diamonds have a high price because their marginal utility is high (due to their rarity), not because their overall demand is great. Demand for water is actually greater than for diamonds, but water's price is lower due to its abundant supply and lower marginal utility.

-Refer to the Above Figure