People pay more for diamonds than for water because
A) total benefits from diamonds are high and total benefits from water are low.
B) there are no substitutes for water.
C) people don't make smart choices.
D) water is scarce.
E) marginal benefits from water are low and marginal benefits from diamonds are high.

Question

Quizplus · Accepted Answer

The law of demand states that people will pay more for goods with higher marginal benefits. In this case, the marginal benefits from diamonds are higher than those from water, leading people to pay more for diamonds. While water is necessary for survival and there are no substitutes for it, the marginal benefit of an additional unit of water is low compared to the marginal benefit of an additional diamond.

People Pay More for Diamonds Than for Water Because