Despite the fact that water is necessary to sustain life, it is less expensive than milk. Economic theory suggests that this is so because

Question

Quizplus · Accepted Answer

Economic theory suggests that the price of a good is determined by its marginal utility, which is the additional utility or satisfaction obtained from consuming one more unit of the good. While water is necessary to sustain life, its marginal utility per dollar spent is low because it is readily available and has few substitutes. On the other hand, milk has higher marginal utility per dollar spent because it provides additional nutrition and taste benefits that are relatively scarce. Therefore, milk is priced higher than water, even though water is more necessary for survival. Options A, C, and D are not supported by economic theory.

Despite the Fact That Water Is Necessary to Sustain Life