Water is cheaper than diamonds because
A)water is a less useful resource.
B)markets fail to reflect value.
C)water yields lower total utility.
D)the last drop of water consumed yields lower marginal utility.
E)people receive negative utility from water.

Question

Quizplus · Accepted Answer

The principle of diminishing marginal utility explains why water is cheaper than diamonds. As more of a good is consumed, the additional satisfaction (marginal utility) gained from consuming one more unit decreases. Since water is abundant, the marginal utility of the last drop consumed is relatively low compared to the marginal utility of diamonds, which are scarce. This lower marginal utility of water contributes to its lower price compared to diamonds.

Water Is Cheaper Than Diamonds Because